The main problem with a system of floating exchange rates is that it
A) leads to excessively high exchange rates that reduce worldwide international trade
B) creates uncertainty and reduces the profitability of international trade
C) increases the amounts of goods exported and imported so it reduces domestic demand
D) generates equilibrium for some exchange rates but not all
E) destabilizes democracies and facilitates the growth of alternative political systems

Question

Quizplus · Accepted Answer

Floating exchange rates can create uncertainty because they can fluctuate widely in a short period of time. This uncertainty can affect the profitability of international trade as businesses may find it harder to predict costs and revenues in foreign currencies.

The Main Problem with a System of Floating Exchange Rates