Illiquid currencies tend to exhibit ____ volatile exchange rate movements, as the equilibrium prices of their currencies adjust to ____ changes in supply and demand conditions.
A) less; even minor
B) less; only large
C) more; even minor
D) more; only large
E) None of these are correct.

Question

Quizplus · Accepted Answer

Illiquid currencies are characterized by a thinner market, which can lead to greater fluctuations in exchange rates even with relatively small changes in supply and demand. Therefore, illiquid currencies tend to exhibit more volatile exchange rate movements as compared to liquid currencies. Even minor changes in supply and demand conditions can result in significant changes in their equilibrium prices.

Illiquid Currencies Tend to Exhibit ____ Volatile Exchange Rate Movements