A Major Problem with Countries Setting Fixed Exchange Rates for Their

question 97

Multiple Choice

A major problem with countries setting fixed exchange rates for their currencies is

• A)Some participating countries are likely to experience continuing balance-of-payments deficits.
• B)The foreign exchange reserves of participating countries are likely to be depleted.
• C)Import and export prices will probably become more unstable.
• D)The fixed rate will have to be maintained by currency market intervention.

---

Definitions:

Silver Price

The market price for silver at a given time, influenced by factors such as market demand, mining supply, and economic conditions.

Economic Exposure

The extent to which a company's value is affected by unforeseen changes in exchange rates.

Transactions Exposure

The risk of exchange rate changes affecting the value of financial transactions denominated in a foreign currency.

Hedging

A strategy used to offset potential losses or gains that may be incurred by a companion investment.