If exchange rates are determined in a floating rate system, what determines the value of a U.S.dollar in terms of euros?

Question

Quizplus · Accepted Answer

In a floating rate system, exchange rates are primarily determined by the demand and supply of currencies in the foreign exchange market. The value of the U.S. dollar in terms of euros will depend on various factors like trade flows, investment flows, inflation, economic indicators, and political stability. Government policies, IMF rules and policies, and central bank interventions can affect exchange rates indirectly by influencing the demand and supply factors. However, they do not determine the exchange rate directly. Therefore, option C is the best choice.

If Exchange Rates Are Determined in a Floating Rate System