Which of the Following Statements About Exchange Rates Is Correct

question 18

Multiple Choice

Which of the following statements about exchange rates is correct?

• A) The exchange rate, in most cases, is floating: it is determined by the supply and demand for currency, and it can change dramatically.
• B) In some cases the exchange rate is pegged, meaning that it is linked to the amount of gold or silver that the country's central bank has in its vaults.
• C) When a country experiences inflation, its currency tends to appreciate.
• D) When a country experiences a trade deficit, its currency tends to appreciate to compensate.

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Definitions:

Required Rate Of Return

The minimum return that an investor is willing to accept for owning a company's stock, given its risk.

Cash Flows

The total amount of money being transferred into and out of a business, particularly concerning liquidity.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in line with the goal of shareholder wealth maximization.

Payback Period

The length of time required to recover the cost of an investment.