The exchange rate is volatile because
A)government policy promotes interest rate fluctuation.
B)the demand curve for foreign exchange is very flat.
C)the demand curve for foreign exchange is very steep.
D)the supply curve of dollars is vertical.
E)the supply of dollars and demand for dollars are influenced by similar events.

Question

Quizplus · Accepted Answer

The supply of and demand for dollars are influenced by similar events and factors such as economic conditions, inflation, and political stability. Any changes in these factors affect both the supply and demand for dollars, thereby leading to fluctuations in the exchange rate. Hence, option E is the best choice.

The Exchange Rate Is Volatile Because