Question

Who determines the foreign exchange rate?

• A. Government
• B. Bargaining
• C. World Bank
• D. Demand and supply forces

Hint:

In the foreign exchange market, the "invisible hand" of demand and supply is the primary force that determines rates.

Answer 1

The Correct Option is D

This question asks the same concept as the previous one. While governments or central banks can intervene to influence exchange rates in a "managed float" system, the fundamental determinant in a free market is the interaction of demand and supply forces. These forces reflect all the buying and selling of the currency for trade, investment, and speculation.