A floating exchange rate is

Question

BlackTom AI · Accepted Answer

A floating exchange rate is determined by the market: the price of one currency relative to another moves in response to supply and demand in foreign exchange markets.

Relevant concepts:
- Exchange rate: the price of one currency expressed in units of another.
- Supply and demand in FX markets: currency demand rises with imports, investment inflows, or expectations of appreciation; supply rises with exports, capital outflows, or expectations of depreciation.
- Government intervention: central banks or governments can buy/sell currencies to influence the rate; absence of such intervention characterizes a floating rate (as opposed to a fixed or pegged rate).

Step-by-step reasoning:
1. Identify what "floating" implies: not fixed or pegged, so the rate is free to change.
2. Determine the mechanism that changes it: market forces (supply/demand) cause appreciation or depreciation.
3. Contrast with alternatives: if a government sets or defends a rate, it is not floating.

There are no numeric calculations for this conceptual question. The logical flow shows that a floating exchange rate arises when the exchange rate is allowed to move based on market participants’ transactions and expectations, without government-imposed levels.

Why option (a) is correct:
- It precisely describes a rate that changes according to supply and demand and explicitly notes absence of government intervention, which matches the textbook definition of a floating exchange rate.

Why the other options are incorrect:
- (b) describes an interest rate set by a central bank, not an exchange rate between currencies.
- (c) confuses economic growth (real growth rate) adjusted for currency value—this is not an exchange rate definition.
- (d) describes a fixed exchange rate maintained through government intervention, the opposite of a floating rate.

Conclusion: The correct choice is (a), matching the provided answer.

A floating exchange rate is单项选择题

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