Exchange rate determination in the short run is underlied by which of the following assumptions:
A) Tariffs and quotas affect trade patterns only in the short run
B) Prices of goods and services affect trade patterns only in the short run
C) Expected returns on financial assets affect investment flows in the short run
D) Preferences for goods and services affect trade flows only in the short run

Question

Quizplus · Accepted Answer

Exchange rate determination in the short run is underlied by the assumption that expected returns on financial assets affect investment flows in the short run. In the short run, investors are more concerned with the potential return on their investments, which can lead to capital inflows or outflows, and thus influence exchange rates. Tariffs, quotas, prices of goods and services, and preferences for goods and services may all play a role in the long run, but are not the primary determinants of exchange rates in the short run.

Exchange Rate Determination in the Short Run Is Underlied by Which