International trade has enabled people to buy foreign manufactured goods and services. Though this may have increased the standard of living of the citizen, but it has risen concern to the government due to falling Forex reserve and falling value of the local currency. For example Pakistan's imports has increased significantly, and parallel to this the Forex reserve of Pakistan has fallen. This fallen Forex reserve was further aided by the falling export.
Many government has used fixed floating exchange rate, while many others has used just fixed or just floating exchange rate. One of the reason for which type of exchange rate should be maintain by the government depends on the level of import and export and the level of investment and capital outflows is taking place. Whatever the case is it is crucial for the government to maintain certain level of foreign currency to pay any unexpected scenarios.
Setting or increasing the higher exchange rate will cause short term benefits, as the revenue generated from export will increase. However in long term export will fall as the the price of export to foreign people will increase and these people will then move to lower price goods from another supplier.
Therefore every government must set their level of exchange rate which provides them with the highest return, wither in profit in Balance of payment or minimum loss, such that these loss can be recovered in the long run.
https://tradingeconomics.com/pakistan/foreign-exchange-reserves
http://www.investopedia.com/ask/answers/031715/how-does-balance-payments-impact-currency-exchange-rates.asp
I would agree that floating rates are more determined by the forces of supply and demand. If Europe's demand for the U.S. dollar were to increase for example it would cause an increase in the price of the dollar in relation to the euro. Exchange rates are fairly complex in how they are effected. A few of the factors that could affect the exchange rate between two countries include inflation, unemployment rates, and even interest rates. This can make controlling the interest rates fairly complicated and not so straight forward. All in all any country would like to set an exchange rate with the highest return but it may be hard to control
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