In the long run, exchange rates are primarily determined by
A) agreements among governments of the world's industrial countries.
B) relative interest rates in developing countries and industrial countries.
C) economic fundamentals, such as relative productivity levels.
D) the rate at which country's currencies exchange for gold.

Question

Quizplus · Accepted Answer

In the long run, exchange rates are primarily determined by economic fundamentals, such as relative productivity levels. Supply and demand for different currencies are influenced by factors such as interest rates, inflation, government policies, and global economic conditions. Over time, these factors will affect a country's productivity and economic growth, which in turn will affect its exchange rate with other currencies. Therefore, economic fundamentals are the most important factor in long-term exchange rate movements.

In the Long Run, Exchange Rates Are Primarily Determined by