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 determined by demand and supply of currencies. Therefore, the value of a U.S. dollar in terms of euros is determined by the demand for and supply of dollars and euros in the foreign exchange market. The exchange rates can fluctuate based on various factors such as trade and investment flows, political events, economic indicators, and market sentiment. Government exchange rate policies, IMF rules and policies, and central bank interventions may influence exchange rates, but they are not the primary determinant in a floating rate system.

If Exchange Rates Are Determined in a Floating Rate System