CSEET · Economic and Business Environment · Global Environment
Under a floating exchange rate system, the exchange rate of a currency is primarily determined by:
Under a floating exchange rate system, the rate is determined by demand for and supply of the currency in the foreign exchange market. The central bank does not fix a parity, although it may intervene occasionally to curb excessive volatility.
- AA fixed parity announced by the central bank
- BThe forces of demand for and supply of the currency in the foreign exchange marketCorrect
- CThe gold reserves held by the country
- DThe decision of the International Monetary Fund each year
Explanation
In a floating system, the rate moves with market demand and supply of the currency. A fixed parity belongs to a fixed regime, and gold backing refers to the gold standard. The IMF does not set annual rates for member currencies.
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