Figure 11.9 shows the market for the U.S.dollar.

-Refer to the graph in the figure above to answer this question.What is the value of the U.S.dollar if a flexible exchange-rate system is in effect?

Question

Figure 11.9 shows the market for the U.S.dollar.
 
-Refer to the graph in the figure above to answer this question.What is the value of the U.S.dollar if a flexible exchange-rate system is in effect?

Quizplus · Accepted Answer

CIn a flexible exchange-rate system, the value of currencies is determined by supply and demand. The intersection point on the graph between the supply and demand curves for the U.S. dollar against the Canadian dollar would give the exchange rate. Choice B indicates the amount of Canadian dollars needed to purchase one U.S. dollar, and choice C represents the reciprocal, showing the amount of U.S. dollars needed to purchase one Canadian dollar, both of which are correct interpretations depending on the perspective (buying U.S. dollars with Canadian dollars or vice versa).

Figure 11.9 Shows the Market for the U.S.dollar