Read the two statements and choose the correct option.
I. Under a flexible rate, the central bank does not need to hold large foreign exchange reserves to defend a rate.
II. A flexible rate gives traders certainty about future exchange rates.

Only ICorrect answerYour answerOnly IICorrect answerYour answerBoth I and IICorrect answerYour answerNeither I nor IICorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer A

Correct answer: A

The market clears itself, so reserves are not needed to hold any level. I is true.
A floating rate can swing, which creates uncertainty for traders. II is false.

Ten questions from Foreign Exchange Rate, at your own pace.

Read the two statements and choose the correct option.I. Under a flexible rate, the central bank does not need to hold large foreign exchange reserves to defend a rate.II. A flexible rate gives traders certainty about future exchange rates.