Advocates of floating rate suggested it is favorable for economies for all of the following reasons EXCEPT
A) it discourages attack from foreign exchange speculators because of the fact that exchange rate adjustment is immediate.
B) it helps stabilize the shock effect on unemployment in case of economic changes such as fall in export demand.
C) it automatically matches the domestic inflation with ongoing foreign inflation.
D) it gives every country the opportunity to guide its own monetary conditions at home.
E) it brings the LR exchange rate to the level predicted by PPP without government policy decisions.
Question 2
Why is China's currency undervalued?
A) The Asian miracle is over.
B) They do not trade with the U.S.
C) They do not allow their currency to appreciate despite large external surpluses.
D) They are stockpiling international reserves to protect against the next East Asian crisis.
E) They are not aware of the real value of their currency.
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