Under a floating system, the exchange rate:
A) fluctuates in response to changing economic conditions.
B) is maintained at a predetermined level by the central bank.
C) is changed at regular intervals by the central bank.
D) fluctuates in response to changes in the price of gold.

Question

Quizplus · Accepted Answer

Under a floating system, the exchange rate is not pegged or fixed at a predetermined level by the central bank. Instead, it fluctuates in response to market forces and changing economic conditions, such as inflation, interest rates, trade balances, and geopolitical factors. The central bank may intervene occasionally to stabilize the exchange rate but does not aim to maintain it at a specific value.

Under a Floating System, the Exchange Rate