If Exchange Rates Are Determined in a Floating Rate System

question 55

Multiple Choice

If exchange rates are determined in a floating rate system, what determines the value of a U.S.dollar in terms of euros?

• A)Government exchange rate policies
• B)IMF rules and policies
• C)Demand and supply
• D)Central bank interventions

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Definitions:

Excess Reserves

Banking reserves exceeding the reserve requirement set by a central bank, not lent out to the bank's clients.

Interest Rate

The fee, shown as a percent of the original amount, that a borrower must pay to a lender to borrow money or other resources.

Sub-prime Housing Loan

A type of loan that is offered at a rate above prime to individuals who do not qualify for prime rate loans, often due to a poor credit history.

Prime Rate

The Prime Rate is the interest rate that commercial banks charge their most credit-worthy customers, often used as a benchmark in setting rates for various types of loans.