Which statement is true of a world with a system of ﬁxed exchange rates as opposed to one with ﬂoating rates?
A) It requires less world liquidity or reserves.
B) It creates less conﬁdence about future values of currencies.
C) It facilitates the transmission of shifts in economic conditions between countries.
D) It increases the role of the central banks in foreign exchange markets.

Question

Quizplus · Accepted Answer

A world with a system of fixed exchange rates requires central banks to actively intervene in foreign exchange markets to maintain the set exchange rate. This increases the role of central banks in foreign exchange markets compared to a world with floating exchange rates where exchange rates are set by market forces.

Which Statement Is True of a World with a System