The correct answer is: "a currency system that allows the exchange rate to be determined by supply and demand".
When a country adopts a flexible exchange-rate system, the exchange rate of its currency (with respect to foreign currencies) is allowed to freely fluctuate, as a consequence of the free interactions of economic agents in the markets, governed by the the forces of supply and demand.
Both financial markets and goods/services markets influence the exchange rates, more specifically, the interest rate differentials between countries and the inflows and outflows of products and services: exports/imports.
