Under a system of floating exchange rates there is a general tendency for ?
Correct answer: B. the currencies of relatively high-inflation countries to depreciate
- A. exchange rates to be insensitive to the differential rates of inflation between countries
- B. the currencies of relatively high-inflation countries to depreciate
- C. the currencies of relatively high inflation countries to appreciate
- D. the currencies of relatively low inflation countries to depreciate
Explanation
With floating exchange rates, a country experiencing relatively higher inflation tends to lose international competitiveness, reducing demand for its currency. The resulting fall in its currency's value is depreciation.
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