In a floating exchange rate system ?
Correct answer: B. The exchange rate should adjust to equate the supply and demand of the currency
- A. The government intervenes to influence the exchange rate
- B. The exchange rate should adjust to equate the supply and demand of the currency
- C. The Balance of payments should always be in surplus
- D. The Balance of payments will always equal the government budget
Explanation
Under floating exchange rates, market forces determine the rate by bringing demand for and supply of the currency into balance. Government does not normally fix the exchange rate, although it may sometimes intervene.
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