ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The free market forces of demand and supply determine the equilibrium exchange rates.
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The demand curve for the currency is upward sloping.
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Only nominal values of currency can be determined.
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The market determines the equilibrium value of the currency, but governments buy and sell currency at a fixed rate.
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Governments are unable to affect the international value of their currency.
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Detailed explanation-1: -A floating exchange rate refers to an exchange rate system where a country’s currency price is determined by the relative supply and demand of other currencies. Currencies with floating exchange rates can be traded without any restrictions, unlike currencies with fixed exchange rates.
Detailed explanation-2: -Is the U.S. Dollar a Fixed or Floating Exchange Rate? The U.S. dollar is a floating currency, much like most of the major currencies in the world. The value of the dollar floats with its demand in the global currency markets. At one point, the U.S. dollar was a fixed currency with its peg to the value of gold.
Detailed explanation-3: -In a floating regime, exchange rates are generally determined by the market forces of supply and demand for foreign exchange.
Detailed explanation-4: -Which of the following is true of a floating exchange rate policy? Governments believe in the free market and allow it to determine exchange rates.