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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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