ECONOMICS
BARRIERS TO TRADE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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to compare the value of different types of goods
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to compare the value of different types of currency
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to help determine whether to impose a barrier to trade
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to help determine which resources should be conserved
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Detailed explanation-1: -What Is an Exchange Rate? An exchange rate is a rate at which one currency will be exchanged for another currency and affects trade and the movement of money between countries.
Detailed explanation-2: -The exchange rate gives the relative value of one currency against another currency. An exchange rate GBP/USD of two, for example, indicates that one pound will buy two U.S. dollars. The U.S. dollar is the most commonly used reference currency, which means other currencies are usually quoted against the U.S. dollar.
Detailed explanation-3: -In a floating regime, exchange rates are generally determined by the market forces of supply and demand for foreign exchange. For many years, floating exchange rates have been the regime used by the world’s major currencies – that is, the US dollar, the euro area’s euro, the Japanese yen and the UK pound sterling.
Detailed explanation-4: -Exchange rates of a currency can be either fixed or floating. Fixed exchange rate is determined by the central bank of the country while the floating rate is determined by the dynamics of market demand and supply.
Detailed explanation-5: -A fixed exchange rate denotes a nominal exchange rate that is set firmly by the monetary authority with respect to a foreign currency or a basket of foreign currencies. By contrast, a floating exchange rate is determined in foreign exchange markets depending on demand and supply, and it generally fluctuates constantly.