One argument favoring a floating-exchange-rate system is that it:
A) makes international trade less difficult.
B) minimizes destabilizing speculation by international investors.
C) allows monetary policy to be used for other purposes.
D) helps prevent excessive growth in the money supply.

Question

Quizplus · Accepted Answer

A floating-exchange-rate system allows a country's central bank to use its monetary policy for domestic purposes, such as controlling inflation or promoting economic growth, without having to worry about maintaining a fixed exchange rate. This is because the exchange rate is allowed to fluctuate freely in response to market forces, rather than being artificially fixed by the central bank. Thus, this argument supports the effectiveness and flexibility of a floating-exchange-rate system.

One Argument Favoring a Floating-Exchange-Rate System Is That It