Under a System of Flexible Exchange Rates, Transactions That Increase

question 41

Multiple Choice

Under a system of flexible exchange rates, transactions that increase the supply of the nation's currency to the foreign exchange market will cause the nation's

• A) currency to depreciate in value.
• B) currency to appreciate in value.
• C) trade deficit to increase.
• D) products to become more expensive to foreigners.

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Definitions:

Short-term Creditors

refers to entities or individuals that lend money or extend credit for short periods, typically less than a year, including suppliers and banks.

Liquidity

A measure of how easily assets can be converted into cash without significant loss of value, indicating the ability of an entity to meet its short-term obligations.

Price-Earnings Ratio

A measurement that contrasts a firm's stock price with its earnings per share to determine if its shares are valued appropriately.

Dividends

Distributions of earnings to stockholders; an account representing the distribution of a corporation’s earnings to stockholders.