Question

A system of floating exchange rate fails when governments ignore the verdict of the exchange markets on their policies and resort to direct controls over trade and capital flows."

08 Sep 2025
Answer :
Word Count : 296
A floating exchange rate system relies on market forces of demand and supply to determine the value of a currency. It allows exchange rates to adjust automatically in response to changes in trade balances, capital flows, and investor sentiment, providing a mechanism for countries to absorb external shocks and maintain economic stability. When governments respect the signals from the ________ ___ ____ _________ ___.
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