Which of the Following Is a Disadvantage of a Free-Floating

question 34

Multiple Choice

Which of the following is a disadvantage of a free-floating exchange rate system?

• A) A free-floating exchange rate system reduces the effectiveness of a country's monetary policy and increases the variability of inflation.
• B) Under a system of free-floating exchange rates, a nation will, over the long run, experience more deficits than surpluses in its balance of payments.
• C) Fluctuating exchange rates make international transactions riskier and thus increase the cost of doing business with other countries.
• D) A free-floating exchange rate amplifies the impact of international events on an economy.

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Definitions:

Channels of Distribution

The pathways through which goods and services flow from the producer to the consumer or end-user in the market.

Opportunity Creation

The process by which new business or investment opportunities are identified, developed, and exploited.

Fragmented Industry

An industry characterized by a large number of small firms, where no single company has a significant market share or power to dominate the industry.

Information Gaps

The lack of necessary knowledge or data between what is known and what needs to be known for effective decision-making.