In a Floating Exchange Rate Regime,the Exchange Rate Is the Equilibrium

question 69

Multiple Choice

In a floating exchange rate regime,the exchange rate is the equilibrium price of the currency.Changes in demand for a currency will cause changes in the equilibrium exchange rate.Which of these statements in relation to the AUD demand curve in the FX market is incorrect?

• A) The purchase of AUD goods, services or assets generates a demand for AUD.
• B) A depreciation of the AUD equates to a fall in the price of Australian goods, services and assets.
• C) The demand curve is downward-sloping; as the price of the AUD increases the demand for the AUD also increases.
• D) A fall in the cost of Australian goods, services or assets will result in increased demand for the AUD.

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Definitions:

Cash Settlement

A method of settling a transaction or financial instrument in cash rather than the physical delivery of the asset.

Bid Rate

The price at which a buyer is willing to purchase securities or other assets.

Offer Rate

The interest rate at which banks lend to their most credit-worthy customers, often referred to in the context of loans and savings.

Transaction Date

When control of the future economic benefits embodied in an asset are obtained from or transferred to another entity.