With respect to exchange rates,which of the following statements is true?
A)An official exchange rate is the "market" rate resulting from the supply and demand for a currency.
B)A floating exchange rate is the "market" rate resulting from the supply and demand for a currency.
C)A government cannot set an exchange rate for their currency that is higher (weakens their currency)than the quoted interbank market rate.
D)A government cannot set an exchange rate for their currency that is lower (strengthens their currency)than the quoted interbank market rate.

Question

Quizplus · Accepted Answer

A floating exchange rate is determined by the supply and demand for a currency in the foreign exchange market. This means that the exchange rate fluctuates constantly based on market forces. An official exchange rate, on the other hand, is a rate set by the government or central bank and does not necessarily reflect market conditions. Options C and D are incorrect because governments and central banks can intervene in the foreign exchange market to influence the value of their currency, either by buying or selling it in large quantities, in order to strengthen or weaken it relative to other currencies.

With Respect to Exchange Rates,which of the Following Statements Is