ECONOMICS
MONEY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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1 Yuan will buy 7 Francs
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1 Franc will buy 7 Yuan
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Francs cannot be traded for Yuan
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The Swiss economy is 7 times larger than China’s.
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Detailed explanation-1: -In a free-floating exchange rate system, exchange rates are determined by demand and supply. Exchange rates are determined by demand and supply in a managed float system, but governments intervene as buyers or sellers of currencies in an effort to influence exchange rates.
Detailed explanation-2: -China does not have a floating exchange rate that is determined by market forces, as is the case with most advanced economies. Instead it pegs its currency, the yuan (or renminbi), to the U.S. dollar. The yuan was pegged to the greenback at 8.28 to the dollar for more than a decade starting in 1994.
Detailed explanation-3: -The bid price is what the dealer is willing to pay for a currency, while the ask price is the rate at which a dealer will sell the same currency. For example, Ellen is an American traveler visiting Europe. The cost of purchasing euros at the airport is as follows: EUR 1 = USD 1.30 / USD 1.40.
Detailed explanation-4: -Ans. Foreign exchange rate is determined by the market forces of demand and supply in foreign exchange market. The point where demand and supply of foreign exchange meet, gives the equilibrium rate of exchange as shown in figure and quantity of foreign exchange.