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JAMB Economics 1995 Question 49

Question 49

Balance of Payments and Exchange Rates

Foreign exchange rate in a free market economy is determined by

  1. A.the government
  2. B.the Central Bank
  3. C.demand and supply
  4. D.commercial banks.
Show the answer and explanation

Answer: C (demand and supply)

Explanation

Under a free (floating) system the exchange rate is set by the demand for and supply of the currency.