A fixed exchange rate is an exchange rate whose value:
A) is established annually by the International Monetary Fund.
B) varies according to the supply and demand for the currency in the foreign exchange market.
C) is set by official government policy.
D) reflects the comparative advantage of the home country versus other foreign countries.

Question

Quizplus · Accepted Answer

A fixed exchange rate is set by official government policy, meaning that the government or central bank will take steps to keep the exchange rate at a certain level by buying or selling its own currency in the foreign exchange market. This is different from a floating exchange rate, which varies according to the supply and demand for the currency in the market. The IMF does not establish exchange rates, but it may provide guidance or support for a country's exchange rate policies. Comparative advantage relates to trade and is not directly related to exchange rates.

A Fixed Exchange Rate Is an Exchange Rate Whose Value