Question 44

International exchange rates are quoted with the units of currency of the trading countries.

Exchange rates are expressed in terms of the currencies involved in the transaction, indicating how much one currency is worth in relation to another. This method allows for clear and direct comparisons between different currencies.

A) With Basel 3 systemic risk measurements

This option is incorrect because Basel 3 regulations pertain to banking reforms and capital requirements, not to how exchange rates are quoted. These measurements do not provide any relevant context for currency valuation or exchange rate determination.

B) With the trade surplus of each central bank

While a trade surplus can influence a country's currency strength, exchange rates are not quoted based on trade surpluses. This option does not accurately reflect the mechanism of quoting exchange rates, which is fundamentally based on currency values, not on economic indicators like trade balance.

C) With the units of currency of the trading countries

This option is correct as it reflects the standard practice of quoting exchange rates. Exchange rates typically show how much of one currency is needed to purchase a unit of another currency, providing a straightforward comparison for traders and investors.

D) With the host countries central bank risk weighted values

This option is incorrect because exchange rates are not quoted based on the risk-weighted values of central banks. While central bank policies may influence currency values, the actual quoting of exchange rates is based on the direct comparison of the currencies involved in trading.

Conclusion

The correct answer, C, accurately describes the method used to quote international exchange rates by using the units of currency relevant to the countries involved. All other options fail to address the direct nature of currency comparison that is fundamental to exchange rate quotations, focusing instead on unrelated economic concepts or incorrect methods.