Answer to Question #142971 in Macroeconomics for Thokozani

Question

A monetary system where exchange rates are freely determined in response to the demand & supply for foreign currencies my be best described as a ?

Answer 1

Solution:

This can be described as a floating exchange rate where the forex market determines a country's currency price based on demand and supply relative to other currencies. A foreign exchange rate is determined by the demand and supply on the open market. As such, if the demand for currency is high, the value will increase. Consequently, if demand is low, the currency price will be driven lower.