Actual exchange rates can be very different from the expected rates forecasted by economists.Many interrelated factors influence the value of a floating currency.The three most important fundamental factors are the nation's balance of payments situation, world political events, and:
A)the world inflation rate.
B)the country's currency value.
C)the nation's inflation rate relative to its trading partners.
D)the tax structure of the nation.
E)the supply of gold that the nation holds.

Question

Quizplus · Accepted Answer

The nation's inflation rate relative to its trading partners is a crucial factor because it affects the country's competitive position in the global market. High inflation can make a country's exports more expensive and imports cheaper, affecting the balance of payments and, consequently, the value of its currency.

Actual Exchange Rates Can Be Very Different from the Expected