Under a Fixed-Rate System,a Country That Followed Policies That Would

question 20

Multiple Choice

Under a fixed-rate system,a country that followed policies that would lead to a higher rate of inflation than that experienced by its trading partners would

• A)experience a balance-of-payments surplus as its goods became more expensive
• B)see an decrease in the supply of its currency on the foreign exchange markets
• C)find its currency subject to upward pressure
• D)experience a balance-of-payments deficit as its goods became more expensive

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Definitions:

Transaction Exposure

The potential risk of exchange rate movements affecting the value of a company's financial transactions denominated in foreign currencies.

Risk Exposure

The extent to which an entity is vulnerable to losses from operational, financial, or market-related risks.

Time of Settling

The specific point when the obligations of a financial transaction are fulfilled.

Foreign Subsidiary

A company that is based in one country but is controlled by a parent company in another country, operating under the laws and regulations of the country where it is located.