In general, which of the following statements is NOT a characteristic of a fixed exchange rate regime as defined by the text?
A) Capital is mobile.
B) Exchange rates are determined by the market in the short run.
C) Arbitrage is free to operate.
D) Government takes an active role in foreign currency market intervention.

Question

Quizplus · Accepted Answer

A fixed exchange rate regime is characterized by a government's active intervention in the foreign exchange market to maintain a fixed exchange rate between its currency and another currency or a basket of currencies. Capital can be mobile, and arbitrage is free to operate in a fixed exchange rate regime, but exchange rates are not determined by the market in the short run.

In General, Which of the Following Statements Is NOT a Characteristic