Question

If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to:

A) a hard peg policy.
B) purchasing power parity.
C) depreciation.
D) a floating exchange rate.

Answer 1

Answer:

The correct answer is D) a floating exchange rate.

Explanation:

The floating exchange rate is a characteristic of the currency that is not determined by any central bank, but from operations of supply and demand of the currencies in a stock exchange or the exchange market. This behavior is determined by internal factors and uncertainty such as inflation or natural phenomena, oil behavior, etc.