All of the following exchange-rate systems require international reserves to finance balance-of-payments disequilibriums except:

Question

Quizplus · Accepted Answer

Freely floating exchange rates do not require international reserves to finance balance-of-payments disequilibriums. This is because under a freely floating exchange rate system, exchange rates are determined purely by market forces of supply and demand, without any government intervention. As such, any balance-of-payments disequilibriums will be automatically corrected by market forces, without any need for government intervention or use of international reserves.

All of the Following Exchange-Rate Systems Require International Reserves to Finance