Under a flexible exchange rate system, one factor that does NOT directly affect rates of exchange is
A) changes in the inflation rate in each country.
B) changes in productivity in each country.
C) changes in gold holdings in each country.
D) changes in economic stability in each country.

Question

Quizplus · Accepted Answer

Gold holdings do not directly affect rates of exchange in a flexible exchange rate system. The exchange rate is determined by market forces of supply and demand for each currency, based on factors such as inflation, productivity, and economic stability. While gold may indirectly affect exchange rates through its impact on a country's economic stability, it is not a direct factor in determining exchange rates.

Under a Flexible Exchange Rate System, One Factor That Does