The currency of a country with a floating exchange rate:
A) is set by the government.
B) is tied to the U.S. exchange rate.
C) can be freely traded, and its value is determined by the foreign-exchange market.
D) All of these are true.

Question

Quizplus · Accepted Answer

A country with a floating exchange rate allows its currency to be freely traded and its value is determined by the foreign-exchange market, not set by the government. The exchange rate is not tied to any specific currency, including the U.S. dollar. Therefore, option C is the correct choice. Option A is incorrect because the government does not set the exchange rate in a floating exchange rate system. Option B is incorrect because a country with a floating exchange rate is not necessarily tied to the U.S. exchange rate.

The Currency of a Country with a Floating Exchange Rate