Proponents of fixed exchange rates would find the most support for their position in which one of the following empirical results regarding the relationship between
Exchange rate variations and the volume of international trade? (Assume that the empirical tests adequately account for other factors that influence the volume of trade.)
A) no discernible relationship between exchange rate variations and the volume of trade
B) a negative relationship between exchange rate variations and the volume of trade
C) a mildly positive relationship between exchange rate variations and the volume of Trade
D) a strongly positive relationship between exchange rate variations and the volume of Trade

Question

Quizplus · Accepted Answer

A negative relationship between exchange rate variations and the volume of trade supports the proponents of fixed exchange rates because it suggests that exchange rate volatility negatively impacts international trade, thereby arguing for the stability that fixed exchange rates provide.

Proponents of Fixed Exchange Rates Would Find the Most Support