Under a Flexible Exchange Rate System, the Rate That Equates

question 54

Multiple Choice

Under a flexible exchange rate system, the rate that equates demand and supply in the exchange rate market also equates the

• A) value of the nation's merchandise exports with the value of its merchandise imports.
• B) value of the nation's purchases of goods, services, and assets from foreigners with the value of the nation's sales of these items to foreigners.
• C) debit and credit items on current account transactions.
• D) debit and credit items on capital account transactions.

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Definitions:

Cost Of Capital

The average rate of return a company must pay to its long-term creditors and shareholders for the use of their funds.

Discounted Cash Flow

A valuation method used to estimate the value of an investment based on its expected future cash flows, adjusted for the time value of money.

Initial Investment

Initial investment refers to the amount of money initially laid out for an investment project or venture.

Profitability Index

The present value of a project’s cash inflows divided by the investment required.