How do exchange rate systems, such as fixed and floating exchange rates, influence international trade and financial stability? A) Exchange rate systems have no impact on international trade or financial stability. B) Fixed exchange rate systems promote exchange rate stability but can lead to trade imbalances, while floating exchange rate systems can enhance international trade but may result in exchange rate volatility. The choice of exchange rate system depends on a country's economic goals and preferences. C) Fixed exchange rate systems always lead to trade deficits. D) Floating exchange rate systems always lead to currency devaluation.

How do exchange rate systems, such as fixed and floating exchange rates, influence international trade and financial stability? A) Exchange rate systems have no impact on international trade or financial stability. B) Fixed exchange rate systems promote exchange rate stability but can lead to trade imbalances, while floating exchange rate systems can enhance international trade but may result in exchange rate volatility. The choice of exchange rate system depends on a country's economic goals and preferences. C) Fixed exchange rate systems always lead to trade deficits. D) Floating exchange rate systems always lead to currency devaluation.

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter21: International Finance

Section: Chapter Questions

Problem 5QP

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Question: How do exchange rate systems, such as fixed and floating exchange rates, influence international trade and financial stability? A) Exchange rate systems have no impact on international trade or financial stability. B) Fixed exchange rate systems promote exchange rate stability but can lead to trade imbalances, while floating exchange rate systems can enhance international trade but may result in exchange rate volatility. The choice of exchange rate system depends on a country's economic goals and preferences. C) Fixed exchange rate systems always lead to trade deficits. D) Floating exchange rate systems always lead to currency devaluation.

Definition Definition Situation in which a country spends more on imports than it makes through exports. When a trade deficit exists, net exports will be negative. Trade Deficit = (Imports) - (Exports)

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