Which of the following is not a potential disadvantage of freely floating exchange rates?
A) They require larger amounts of international reserves than other exchange systems.
B) Demand for imports and exports may be influenced by price speculation.
C) There may occur large amounts of destabilizing speculation.
D) Capital movements among nations may be hindered via exchange rate fluctuations.

Question

Quizplus · Accepted Answer

Freely floating exchange rates do not require larger amounts of international reserves than other exchange systems. In fact, one of the advantages of a freely floating exchange rate system is that it reduces the need for a country to hold large reserves for the purpose of maintaining a fixed exchange rate.

Which of the Following Is Not a Potential Disadvantage of Freely