Freely Floating exchange rate system
Example of a definition question:Paper 3 2016
(a) Define the term freely floating exchange rate system. [2 Marks]
Marking levels:
The work does not reach a standard described by the descriptors below. [0 Marks]
Vague definition. The idea that the exchange rate fluctuates / changes. [1 Mark]
Accurate definition. An explanation that the determination of the exchange rate depends on market forces (D and S). [2 Marks]
Definition: A freely floating exchange
rate (ER) system is when the ER is determined only by supply and demand
for the currency and there is no government intervention in the
currency market. |
Syllabus: Explain that the value of an exchange rate in a floating system is determined by the demand for, and supply of, a currency
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