A Potential Disadvantage of Freely Floating Exchange Rates Is That

question 90

Multiple Choice

A potential disadvantage of freely floating exchange rates is that there would:

• A) Exist excessive amounts of hedging in the foreign exchange markets
• B) Be a lack of incentive to initiate exchange arbitrage
• C) Be excessive amounts of destabilizing speculation
• D) Exist a devaluation bias in the exchange markets

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Definitions:

Disarming

The act of reducing hostility or suspicion, typically through charm, friendliness, or a straightforward approach.

Agreement

A mutual understanding or arrangement between two or more parties, often formalized by a contract.

Empathy

The ability to understand and share the feelings of another person from their perspective.

Groupthink

A psychological phenomenon occurring within a group of people, in which the desire for harmony or conformity results in an irrational or dysfunctional decision-making outcome.