The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4

-The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):
A)historical anachronism.
B)fixed exchange rate.
C)"dirty float" exchange rate.
D)unmanaged exchange rate.
E)free market equilibrium exchange rate.

Question

The figure below shows the demand (D) and supply (S) curves of cocoa in the U.S.Figure 21.4
 
-The exchange rate that is established in the absence of foreign exchange market intervention by the government is known as a(n):
A)historical anachronism. 
B)fixed exchange rate. 
C)"dirty float" exchange rate. 
D)unmanaged exchange rate. 
E)free market equilibrium exchange rate.

Quizplus · Accepted Answer

In the absence of government intervention, the exchange rate is determined by the market forces of demand and supply. This is known as a free market equilibrium exchange rate. Option A is not related to the concept of exchange rates. Option B refers to a situation where the government fixes the exchange rate, which is not the case here. Option C refers to a situation where the government intervenes in the foreign exchange market to influence the exchange rate, which is also not the case. Option D is not a standard term used to refer to exchange rates.

The Figure Below Shows the Demand (D) and Supply (S)