Pregunta
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Question 35
If government policy allows a country’s currency to be determined in the exchange rate market, then that currency will
be subject to:
(A) a hard peg policy.
(B) purchasing power parity.
© depreciation.
(D) a floating exchange rate.

Ask by Ball Reeves. in the United States
Mar 30,2025

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The currency will have a floating exchange rate.

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Beyond the Answer

When a country’s currency is determined by the exchange rate market without direct government control, it’s like letting the currency go for a swim in the financial pool! This means that its value can fluctuate based on supply and demand dynamics, making it highly responsive to economic events and investor sentiment.
Adopting a floating exchange rate can lead to exciting outcomes, but it can also create volatility for businesses involved in international trade. Companies have to be prepared for currency risk—like a rollercoaster ride! Hedging strategies, such as options and forwards, can help manage this risk, ensuring their financial balance remains intact amidst the fluctuations.

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