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The Floating rate system is the monetary system which adopts fluctuating rates to exchange its currencies with the currency of other countries, and the rate is called the floating rate .Floating exchange rate is that rate of exchange which is determined by two countries based on relative demand and supply for their currencies. The international trade and investment activities play a vital role in determining this rate. Total bilateral trade activity i.e total volume of exports and imports is an important factor to arrive at this rate. Sometimes, there is an intervention of the government to regulate the currency. This type of monetary system is most popular, as it helps to resemble the true value of the home currency in relation to foreign currency.