Exchange Rates via Market Forces

Steps:

• Identify the statement: Prices of USD in other currencies set by demand and supply.
• Recall exchange rate systems: Fixed rates are government-controlled; floating rates are market-driven.
• Match to floating system: Demand and supply directly determine value without intervention.
• Eliminate mismatches: Statement ignores protectionism, fixed systems, or globalization.

Why C is correct:

• In a floating exchange rate system, the exchange rate is determined by the interaction of supply and demand in the foreign exchange market, as per basic economic principles of market equilibrium.

Why the others are wrong:

• A: Trade protection involves tariffs or quotas, not currency pricing.
• B: Fixed systems set rates by governments or central banks, not market forces.
• D: Globalization expands trade but doesn't specify how exchange rates are set.

Final answer: C