Which of the following statements is true about the current monetary system?
A)Use of instruments such as the forward market and swaps has decreased since the breakdown of the Bretton Woods system.
B)The present monetary system lacks the volatile movements in exchange rates that existed in a fixed exchange rate system.
C)The current foreign exchange market works exactly as depicted in the purchasing power parity theory.
D)Instruments such as the forward market and swaps increase the foreign exchange risk a company faces.
E)A combination of government intervention and speculative activity drives the current foreign exchange market.

Question

Quizplus · Accepted Answer

The current foreign exchange market is driven by a combination of government intervention and speculative activity. The use of instruments such as the forward market and swaps has increased since the breakdown of the Bretton Woods system, but they also increase the foreign exchange risk a company faces. The present monetary system lacks the stability and predictability of a fixed exchange rate system and does not work exactly as depicted in the purchasing power parity theory. Therefore, option E is the only true statement about the current monetary system.

Which of the Following Statements Is True About the Current