In a floating exchange rate system,the equilibrium exchange rate is determined
A) by the price of the foreign currency
B) by the government of the country issuing the foreign currency
C) by the interest rate in the country issuing the foreign currency
D) by the Federal Reserve
E) at the intersection of the demand curve and supply curve for the foreign currency

Question

Quizplus · Accepted Answer

In a floating exchange rate system, the equilibrium exchange rate is determined by the intersection of the demand and supply curves for the foreign currency. The demand curve represents the amount of foreign currency buyers in the domestic country are willing to purchase at different exchange rates, while the supply curve represents the amount of foreign currency sellers in the domestic country are willing to sell at different exchange rates. The point of intersection represents the equilibrium exchange rate where the quantity demanded equals the quantity supplied. Therefore, choice E is the correct answer.

In a Floating Exchange Rate System,the Equilibrium Exchange Rate Is