Advocates of floating rate suggested it is favorable for economies for the following reasons except
A) it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate.
B) it helps stabilize the shock effect on unemployment in case of economic changes such as fall in export demand.
C) it automatically matches the domestic inflation with ongoing foreign inflation.
D) it gives every country the opportunity to guide its own monetary conditions at home.
E) it brings the LR exchange rate to the level predicted by PPP without government policy decisions.

Question

Quizplus · Accepted Answer

Advocates of floating rate do not suggest that it automatically matches the domestic inflation with ongoing foreign inflation. This is because exchange rate movement is determined by a variety of factors, including supply and demand for currency, interest rate differentials, and geopolitical events, which may not necessarily reflect inflation rates. The other options are all potential benefits of a floating exchange rate regime.

Advocates of Floating Rate Suggested It Is Favorable for Economies