Briefly explain the concept and operation of a floating exchange rate.
What will be an ideal response?
POSSIBLE RESPONSE: Floating exchange rates are determined by foreign exchange markets based on the forces of private supply and demand. A floating exchange rate means that the value of a currency is subject to changing market conditions. With a floating exchange-rate, the monetary authority allows exchange rates to fluctuate freely, in the case of a clean float, or almost freely, in the case of a managed float. With a clean float there is no official government intervention in the foreign exchange market. Instead, the central bank allows the exchange rate to adjust so as to equate the nonofficial supply and demand for foreign currency. With a managed float the central bank does sometime intervene in the foreign exchange market, buying or selling foreign currency to influence the value of the floating exchange rate. Floating exchange-rate markets can be highly volatile and unpredictable at times.
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According to the above table, the country will import the good if the world price is less than ________ and will export the good if the world price is more than ________
A) $4; $4 B) $4; $8 C) $10; $10 D) $8; $4 E) $6; $6
The General Agreement on ___________ and Trade (GATT) was established to provide a forum in which nations could come together to negotiate reductions in tariffs and other barriers to trade.
a. Travel b. Taxes c. Tariffs d. Transfers
When demand is perfectly inelastic, the price elasticity of demand
a. is zero, and the demand curve is vertical. b. is zero, and the demand curve is horizontal. c. approaches infinity, and the demand curve is vertical. d. approaches infinity, and the demand curve is horizontal.
United States Government Source of Funds and Outlays, Fiscal 2011
What will be an ideal response?