A Flexible Exchange Rate Is an Exchange Rate Whose Value

question 70

Multiple Choice

A flexible exchange rate is an exchange rate whose value:

• A) is determined by the law of one price.
• B) varies according to the supply and demand for the currency in the foreign exchange market.
• C) is established annually by the International Monetary Fund.
• D) reflects the comparative advantage of the home country versus other foreign countries.

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Definitions:

Real Returns

The profit or income generated from an investment, adjusted for inflation, to reflect the true purchasing power of the earnings.

Purchasing Power

The amount of goods or services that can be bought with a unit of currency.