Question

Under a system of floating exchange rates, changes in the value of the U.S. dollar relative to other currencies are the result of

Answer 1

Under a system of freely floating exchange rates, an increase in the international value of a nation's currency will cause its imports to rise.

What are floating exchange rates?

• A floating exchange rate (also known as a fluctuating or flexible exchange rate) is a type of exchange rate regime in which the value of a currency is permitted to fluctuate in reaction to foreign exchange market occurrences.
• A floating currency is one that uses a floating exchange rate, as opposed to a fixed currency, the value of which is determined in terms of material items, another currency, or a group of currencies (the idea of the last being to reduce currency fluctuations).
• When the international value of a country's currency rises, so do its imports, and vice versa.

As it is given in the description itself, when the international value of a country's currency rises, so do its imports, and vice versa.

Therefore, Under a system of freely floating exchange rates, an increase in the international value of a nation's currency will cause its imports to rise.

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Under a system of freely floating exchange rates, an increase in the international value of a nation's currency will ____.