Which of the following events is least likely to take place under a fixed exchange rate system?
A) an increased volume of trade because of a decline in exchange rate volatility
B) increased cross-border capital flows
C) increase in cost of trade because of higher transaction costs
D) increased cross-border labor flows in integrated economies

Question

Quizplus · Accepted Answer

In a fixed exchange rate system, the exchange rate is fixed and does not fluctuate, making trade more predictable and reducing exchange rate volatility. This would lead to an increase in trade volume (option A) and could potentially lead to an increase in cross-border capital flows (option B). However, increased transaction costs (option C) would discourage trade and potentially limit the benefits of a fixed exchange rate system. Increased cross-border labor flows (option D) are not directly related to the exchange rate system and could occur under either a fixed or flexible system depending on other factors.

Which of the Following Events Is Least Likely to Take