When the Exchange Rate Is Allowed to Adjust to Market

question 109

Multiple Choice

When the exchange rate is allowed to adjust to market forces, all of the following are true except one.Which is the exception?

• A)The foreign exchange market clears continually.
• B)The quantities of foreign exchange demanded and supplied are equal.
• C)The exchange rate will only change if the central bank alters the exchange rate.
• D)The exchange rate will remain constant until a change occurs in one of the factors that affect supply or demand.
• E)The forces of demand and supply determine the exchange rate.

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Definitions:

Demand Function

A mathematical formula that describes the relationship between the quantity demanded of a good and its price, holding other factors constant.

Price Discrimination

A pricing strategy where identical or substantially similar goods or services are sold at different prices by the same provider to different groups of consumers.

Monopolist

An economic agent (individual or company) that is the sole supplier of a particular commodity or service, controlling the market.

Market

A venue or system where buyers and sellers interact to trade goods, services, or financial instruments, determining prices through supply and demand.