An exchange rate that varies according to the supply and demand for the currency in the foreign exchange market is called a ______ exchange rate.
A) real
B) nominal
C) fixed
D) flexible

Question

Quizplus · Accepted Answer

A flexible exchange rate, also known as a floating exchange rate, is determined by market forces of supply and demand. As the supply and demand for one currency relative to another fluctuates, the exchange rate between the two currencies will change accordingly. This is in contrast to a fixed exchange rate, where the exchange rate is set by the government or central bank and does not fluctuate in response to market forces. Real and nominal exchange rates are different concepts altogether, and are not directly related to whether an exchange rate is flexible or fixed.

An Exchange Rate That Varies According to the Supply and Demand