Under a Floating Rate System, Exchange Rates Are Determined by Supply

question 160

True/False

Under a floating rate system, exchange rates are determined by supply and demand in the foreign exchange market without government intervention.

---

Definitions:

Capital Rationing

The situation that exists if a firm has positive Net Present Value projects but cannot find the necessary financing.

Marginal Costs

The change in total production cost that arises when the quantity produced is incremented by one unit, reflecting the cost of producing one additional unit of a good.

Incremental Costs

Costs that change or increase depending on the decisions made by a company, such as starting a new production process or producing more units of a product.

Fixed Costs

Expenses that do not change with the level of production or sales activities, such as rent or salaries.