A potential limitation of freely floating exchange rates is that
A) countries require a larger amount of international reserves than otherwise.
B) countries are unable to initiate economic policies to combat unemployment.
C) exchange rates may experience wide and frequent fluctuations.
D) demand tends to be highly sensitive to price movements.

Question

Quizplus · Accepted Answer

Freely floating exchange rates can result in wide and frequent fluctuations in exchange rates, which can create uncertainty and volatility in international markets. This can be a potential limitation for businesses and governments that rely on stable exchange rates for trade and investment.

A Potential Limitation of Freely Floating Exchange Rates Is That