Foreign exchange controls, unlike tariffs and quotas, do not distort incentives for trade between countries.

Question

Quizplus · Accepted Answer

Foreign exchange controls restrict the flow of currencies between countries, which can distort trade incentives and lead to imbalances in trade. These controls can affect the comparative advantage of countries and alter the price signals that determine the allocation of resources. Therefore, foreign exchange controls can distort incentives for trade between countries.

Foreign Exchange Controls, Unlike Tariffs and Quotas, Do Not Distort