Question

The foreign exchange rate describes the

A) balance of trade
B) balance of payments
C) law of comparative advantage
D) price of a foreign currency in terms of domestic currency

Answer 1

The foreign exchange rate describes the price of a foreign currency in terms of domestic currency, influenced by supply and demand, monetary policy, and economic factors. The correct answer is option d.

Step-by-step explanation:

The foreign exchange rate describes the price of a foreign currency in terms of domestic currency. It is not a static value but a price arrived at through the dynamics of supply and demand in foreign exchange markets. Governments and central banks can influence this rate through monetary policy and intervention in foreign exchange markets.

Factors such as trade balances, productivity, and innovation can also impact the value of a currency. Therefore, the correct answer to the question is D) price of a foreign currency in terms of domestic currency.