Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They are fixed by the government.
B
They fluctuate based on market forces.
C
They are only used in developing countries.
D
They are not influenced by interest rates.
Understanding the Answer
Let's break down why this is correct
Answer
The primary characteristic of flexible exchange rates is that their value changes based on supply and demand in the foreign exchange market. This means that the price of one currency in terms of another can go up or down depending on how many people want to buy or sell that currency. For example, if a lot of people want to buy euros with dollars, the value of the euro may increase while the value of the dollar decreases. This system allows for automatic adjustments to economic conditions, making it easier for countries to respond to changes in trade and investment. Overall, flexible exchange rates help reflect the true value of currencies based on current market conditions.
Detailed Explanation
Flexible exchange rates change based on supply and demand in the market. Other options are incorrect because Some might think that flexible rates are set by the government; It's a common belief that only developing countries use flexible rates.
Key Concepts
flexible exchange rates
Topic
Flexible Exchange Rates
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.