A Major Drawback of a Floating Exchange Rate Is The

question 262

Multiple Choice

A major drawback of a floating exchange rate is the:

• A) opportunity cost associated with the accumulation of foreign exchange reserves.
• B) uncertainty about the value of goods traded internationally.
• C) increased discipline on monetary policy.
• D) distorted incentives for the normal flow of imports and exports.

---

Definitions:

Substitute Products

Goods or services that can be used in place of each other, demonstrating a positive cross-elasticity of demand.

Oligopolistic Firms

Companies that are part of an oligopoly, a market structure with a small number of large firms dominating the industry, often leading to strategic behavior.

High Profits

Increased financial gains resulting from operating activities, typically seen as significantly above the average or expected level.

Market Structure Types

Various classifications of market systems based on the number of firms in the market, the nature of the product, and the degree of competition, including perfect competition, monopoly, oligopoly, and monopolistic competition.