In a free market, the equilibrium exchange rate occurs at the point where the quantity demanded of a foreign currency equals the quantity of that currency supplied.

Question

Quizplus · Accepted Answer

This statement is true. In a free market, the equilibrium exchange rate is determined by the intersection of the demand for and supply of a currency. At this point, the quantity demanded of a foreign currency equals the quantity supplied, resulting in a stable exchange rate.

In a Free Market, the Equilibrium Exchange Rate Occurs at the Point