Explain the various factors which may affect an exchange rate in a floating exchange rate

A floating exchange system is when the fate of the currency is determined by market forces such as supply and demand. Currencies in a floating exchange system can either appreciate or depreciate. Appreciation is when  a floating exchange system increases in value in terms of another currency. Depreciation is when a currency decreases in value in terms of another currency. The shifts in the market forces (Supply and Demand) is determined by various different factors.
One of these factors is exports and imports. As a rule, demands of a countries export is directly proportional to the demand of the currency. (Nations can not buy exports with domestic currencies). For example, the demand of the Australian Dollar is high because it has a lot of commodities (Oil, Coal, etc) which it sells to the world, in particular China. The increase in demand of the AUSD is seen in Figure ONe. As the quantity demanded of the AUD increases from Q1 to Q2, the Price of the AUSD in terms of the Yuan also goes up, from P1-P2.
As a countries imports increases, the country will experience depreciation. To import goods a country must sell their own currency and buy foreign currencies. Thus the supply of the currency in the market increases, therefor the value of the currency decreases.     The second factor which affect an exchange rate in a floating exchange rate system is through flow of funds. When there is an inbalance in the balance of payments, there will either be an inflow of funds (where people are investing in your country) and an outflow of funds (where people in your country are just spending money on foreign goods).    The third way a currency can affect a floating exchange system is through specculation. When people expect appreciation, the demand of the currency will increase because they will try and buy the currency. When investors expect depreciation, because people will sell the currency expected to depreciate. Section 4.5-4