Question

An exchange rate is fixed when it:
A.changes the value of different currencies based on their overall economic health
B.adjusts the value of a currency based on inflation and interest rates
C.sets the value of a currency in relation to another currency
D.Allows market forces of supply and demand to set the value of a currency

Answer 1

Answer: C. Sets the value of a currency in relation to another currency.

Explanation:

Just got it right on A PEX

Answer 2

An exchange rate is fixed when it sets the value of a currency in relation to another currency. Hence, option C is correct.

What is an exchange rate?

The price of one currency in relation to another currency is known as the exchange rate. There are two types of exchange rates: floating and fixed. The central banks of a nation set fixed exchange rates, whereas market forces such as supply and demand determine floating exchange rates.

In the foreign exchange market, one dollar can be traded for 120 yen, for instance, if the exchange rate between the U.S. dollar and the Japanese yen is 120 yen per dollar.

Thus, option C is correct.

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