Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They provide greater predictability for international contracts.
B
They allow for automatic adjustment to economic shocks.
C
They eliminate currency speculation entirely.
D
They ensure a stable inflation rate across countries.
Understanding the Answer
Let's break down why this is correct
Answer
One advantage of flexible exchange rates is that they can adjust automatically to changes in the economy. When a country's economy is doing well, its currency may strengthen because more people want to buy its goods and invest there. For example, if the United States has strong job growth, more investors might want to buy U. S. dollars to invest in American companies, which can raise the dollar's value.
Detailed Explanation
Flexible exchange rates can change easily based on the economy. Other options are incorrect because Some people think flexible rates make contracts easier to predict; It's a common belief that flexible rates stop currency speculation.
Key Concepts
advantages of flexible rates
exchange rate determination
Topic
Flexible Exchange Rates
Difficulty
medium level question
Cognitive Level
understand
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