Quick Quiz: Determining Currency Exchange Rates

Question: What is the name of an exchange rate where each currency isn’t necessarily backed by a resource?

Answer: A floating exchange rate is an exchange rate where each currency isn’t necessarily backed by a resource.

Question: What are fixed exchange rates?

Answer: Fixed exchange rates use a standard, such as gold or another precious metal, and each unit of currency corresponds to a fixed quantity of that standard that should (theoretically) exist.

Question: What is a managed floating exchange rate?

Answer: A managed floating exchange rate means that each currency’s value is affected by the economic actions of its government or central bank.

Question: Which controlled international exchange rates until the 1910s?

Answer: The gold standard controlled international exchange rates until the 1910s.

Question: How are current international exchange rates determined?

Answer: Current international exchange rates are determined by a managed floating exchange rate.