Questions 66-71 are based on the following passage.
Currencies have a market, the foreign exchange market. Here, pounds sterling, U.S. dollars, Swiss Francs, Italian Life, etc. are bought and sold. We ought to add that the foreign exchange market is a "market" only in the widest sense of the term. It consists of the foreign exchange departments of most of the banks acting either on their own or on their clients' account. There are, in addition, the foreign exchange brokers who act as specialized firms in the field.
Practically, all dealing is done by telephone or teleprinter in the offices of the exchange brokers. These brokers are in constant touch with both their opposite broker and the banks. The slightest variation in exchange rate anywhere in the world is watched for possible action. If there are no restrictions on movement of capital between countries, actions are to be taken which will include the rapid shifting of funds between financial centers to take advantage of profitable price differentials.
The freedom of trade in currencies is at present somewhat restricted by a variety of exchange controls which are still enforced by many countries. The demand in one country, say England, for a foreign currency results from the desire for imports from another country, say France. The pound sterling-French Francs price is mainly regulated by interested parties in either country wanting to buy them, or sell to the other. The strength of the pull in either direction settles price of the currencies in terms of one another. This is how in a free exchange market the rate is arrived at.
Needless to say, there are normally more than two countries trading with one another. This somewhat complicates the establishment of exchange rates, because not only pounds, sterling and French francs but also, for example, U.S. dollars, Indian rupees, and Canadian dollars will all simultaneously be in relationship to one another.