Which of the Following Statements Is Not True of Fixed

question 28

Multiple Choice

Which of the following statements is not true of fixed and flexible exchange rate systems?

• A)Under fixed exchange rates, government officials have little direct role in the foreign exchange market.
• B)Under fixed exchange rates, the government must select an appropriate exchange rate.
• C)Under fixed exchange rates, active central bank intervention is necessary to maintain the fixed exchange rate.
• D)Under fixed exchange rates, the governments must stand ready to buy all foreign exchange offered to it and supply all foreign exchange demanded from it.
• E)Flexible exchange rates rely on market forces to set the exchange rate, but fixed exchange rates are set by central banks.

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Definitions:

Forward Contract

A customizable financial contract between two parties to buy or sell an asset at a specified price on a future date.

Option Price

The price at which the holder of an option can buy (call option) or sell (put option) the underlying asset.

Forward Price

The agreed-upon price for a financial transaction that will occur at a future date.

Settlement

The process of resolving a transaction, which in finance typically means the exchange of payment for goods or services.