Which of the following statements about the foreign exchange market is not true?
a. The exchange rate setting depends on the exchange rate regime a nation chooses.
b. When a central bank intervenes in the foreign exchange market, it also affects the nation's monetary base.
c. The elasticities of an economy's supply and demand for foreign exchange determine the exchange rate volatility.
d. Flexible exchange rates increase the business risks associated with exchange rate movements.
e. Fixed exchange rates decrease the business risks associated with changes in a nation's money supply.
.E
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The economic value which can be created by a transaction between two people, Ed (seller) and Luis (buyer), is $50 as Ed's opportunity cost of selling is $135 and Luis' valuation of the good is $185 . Suppose Ed and Luis do not speak the same language and Ed hires an interpreter who charges $2 per hour. Ed and Luis finally agree to a price of $160 . This implies:
a. Luis' valuation of the good will increase. b. Ed's opportunity cost will decline. c. economic value from the transaction will decline. d. Ed will receive to a lower benefit than Luis.
The variable that links the market for loanable funds and the market for foreign-currency exchange is
a. net capital outflow. b. national saving. c. exports. d. domestic investment.