Which of the following is a characteristic of the floating exchange rate regime?
A)It allows for automatic trade balance adjustments.
B)The use of monetary policy by the government is restricted.
C)It allows for greater monetary discipline.
D)It limits the destabilizing effects of exchange rate speculation.
E)It eliminates volatility and uncertainty associated with exchange rates.

Question

Quizplus · Accepted Answer

The floating exchange rate regime allows for automatic adjustments in trade balance as exchange rates fluctuate according to market forces. This means that if a country's imports exceed its exports, its currency will depreciate, making its exports relatively cheaper, and imports more expensive, leading to a trade balance correction.

Which of the Following Is a Characteristic of the Floating