Which of the following is true of a floating exchange rate system?Question 4Select one:a.It facilitates automatic trade balance adjustments.b.The European Monetary System adopted a floating exchange rate system prior to 1999.c.It exists when a country fixes the value of its currency relative to a reference currency.d.It provides monetary discipline compared to a fixed exchange rate system.

The correct answer is:

a. It facilitates automatic trade balance adjustments.

In a floating exchange rate system, the value of a country's currency is determined by the foreign exchange market, based on supply and demand. This allows for automatic adjustments in the trade balance. When a country has a trade deficit, its currency will depreciate making its exports cheaper and imports more expensive, which in turn helps to reduce the deficit. Conversely, if a country has a trade surplus, its currency will appreciate making its exports more expensive and imports cheaper, which helps to reduce the surplus.

The other options are incorrect because:

b. The European Monetary System did not adopt a floating exchange rate system prior to 1999. Instead, they used a fixed exchange rate system.

c. A floating exchange rate system does not exist when a country fixes the value of its currency relative to a reference currency. This describes a fixed exchange rate system.

d. It's debatable whether a floating exchange rate system provides more monetary discipline compared to a fixed exchange rate system. Both systems have their advantages and disadvantages.