ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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forex market based on demand for the currency compared with other currencies.
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forex market based on supply and demand compared with other currencies.
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central banking authority
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the country who is trading with our country
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Detailed explanation-1: -What is a Floating Exchange Rate? A floating exchange rate is a regime where the currency price of a nation is set by the forex market based on supply and demand relative to other currencies. This is in contrast to a fixed exchange rate, in which the government entirely or predominantly determines the rate.
Detailed explanation-2: -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-3: -Free float (Floating exchange rate) Under a free float, also known as clean float, a currency’s value is allowed to fluctuate in response to foreign-exchange market mechanisms without government intervention.
Detailed explanation-4: -Example of Floating Exchange Rate 1 United States Dollar equals 0.78 Pound Sterling on a particular day. But a day before, the same was 0.76-Pound Sterling which might increase or decrease the next day based on the demand and supply forces prevailing in the market.
Detailed explanation-5: -Compared with pegged regimes, floating exchange rates are at less risk for overvaluation, but they also fail to deliver low inflation, reduced volatility, or better trade integration.