Question

Exchange rates are simply another price of ________, similar to ________?

1) lending; interest rates
2) doing business; inventory costs
3) money; interest rates
4) borrowing; bond issue costs

Answer 1

Exchange rates represent the price of one currency in terms of another and are determined by supply and demand, similar to how interest rates are the price of borrowing money.

Step-by-step explanation:

Exchange rates are the price at which one currency can be exchanged for another, much like a commodity's price. Specifically, the exchange rate is the price of one currency expressed in terms of units of another currency. This concept can be understood fully through the operation of supply and demand in markets, quite similar to how other economic prices are determined. Applying these principles, the correct answer to the student's question, "Exchange rates are simply another price of ________, similar to ________?" is 3) money; interest rates.

Interest rates can be seen as a price of money because they represent the cost of borrowing money. In a similar fashion, exchange rates represent the 'cost' or price of exchanging one currency for another.