Which of the following factors affects the exchange rate in the short run but not the long run?
A) domestic interest rate
B) relative expected trade barriers
C) relative import demand
D) They all affect the short and long run exchange rate.

Question

Quizplus · Accepted Answer

Domestic interest rates can cause short-term fluctuations in exchange rates due to capital flows responding to changes in interest rate differentials. In the long run, factors like productivity, trade balances, and economic policies tend to dominate exchange rate movements, making the impact of interest rates more transient.

Which of the Following Factors Affects the Exchange Rate in the Short