Which of the Following Is TRUE About Exchange Rates

question 18

Multiple Choice

Which of the following is TRUE about exchange rates?

• A) They should not be volatile because they will determine the economic climate.
• B) They are generally more volatile than stock prices.
• C) They are more volatile than several underlying factors that move them such as money supplies and fiscal variables.
• D) They should be volatile because to correct price signals they adjust quickly in response to economic news, but they are generally less volatile than stock prices.
• E) They never overreact to economic news.

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Definitions:

Economies of Scale

The financial benefits that companies gain as a result of their size, production volume, or operational scope, where the cost for each unit of production typically falls as the scale expands.

Third-Degree Price Discrimination

A pricing strategy where different prices are charged to different groups of consumers for the same product, based on elasticity of demand.

Monopoly Power

The ability of a single seller to set prices and control the market for a good or service without significant competition.

Peak-Load Pricing

Practice of charging higher prices during peak periods when capacity constraints cause marginal costs to be high.