What factors are most important for determining exchange rate fluctuations in the long run?
A) Relative price levels across countries
B) Relative rates of productivity growth across countries
C) Preferences for domestic and foreign goods across countries
D) All of these options are correct

Question

Quizplus · Accepted Answer

All of these factors play a significant role in determining exchange rate fluctuations in the long run. Relative price levels across countries determine the purchasing power parity of a currency, while relative rates of productivity growth impact a country's competitiveness and influence international trade flows. Preferences for domestic and foreign goods can also affect the demand for a currency.

What Factors Are Most Important for Determining Exchange Rate Fluctuations