Under a floating exchange rate system, the government bears the responsibility to ensure that the BOP is near zero.

Question

Quizplus · Accepted Answer

Under a floating exchange rate system, the government does not bear the responsibility to ensure that the BOP is near zero. The market forces (supply and demand) determine the exchange rate, and the government's role is limited to implementing macroeconomic policies to influence the economy. In a floating exchange rate system, the BOP can be negative or positive, and the government may intervene in the foreign exchange market if necessary, but it is not their primary responsibility to keep the BOP near zero.

Under a Floating Exchange Rate System, the Government Bears the Responsibility