AP Macroeconomics 6.3.2: Flexible Exchange Rates

Explain how demand and supply determine equilibrium exchange rates under a flexible exchange-rate system.

[Maximum number: 1]

Under a flexible exchange-rate system, the exchange rate between two countries' currencies is determined by the

A

amount of gold reserves held by the central bank in each country

B

gross domestic product of the exporting country

C

demand for and supply of each country's cur rency

D

amount of resources available to the importing country

E

real interest rate in the exporting country

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MKT-5.C—Define (using graphs as appropriate) the equilibrium exchange rate question 1