Over a month in late 2008, the Federal Reserve Bank reduced the interest rate by 1 percentage point. Given that the United States operates under a ________ exchange rate regimes, the primary purpose of these changes was ________ exchange rate of each currency.
A) flexible; not designed to influence
B) flexible; designed to influence
C) fixed; designed to influence
D) fixed; not designed to influence

Question

Quizplus · Accepted Answer

The United States operates under a flexible (or floating) exchange rate regime, where the value of its currency is determined by the foreign exchange market. Changes in interest rates by the Federal Reserve are primarily aimed at domestic economic objectives such as controlling inflation or stimulating growth, not directly designed to influence the exchange rate, although they can have indirect effects.

Over a Month in Late 2008, the Federal Reserve Bank