Which of the Following Is an Advantage of a Free-Floating

question 124

Multiple Choice

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

• A) A free-floating exchange rate acts as a buffer to insulate an economy from the impact of international events.
• B) Under a system of free-floating exchange rates, a nation will, over the long run, experience more surpluses than deficits in its balance of payments.
• C) Fluctuating exchange rates reduces the risk involved in international transactions r and thus lower the cost of doing business with other countries.
• D) A free-floating exchange rate system improves the effectiveness of a country's monetary policy and promotes price stability.

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