The downside (negative aspect) associated with a free and floating exchange rates is that
A) countries appreciate their rates so that the float is only upward
B) they depend on trade agreements that can, and have been, broken
C) whether they increase or decrease, it takes currency to float the rate
D) arbitrage takes advantage of different opportunity costs
E) it creates an uncertainty about future rates that can reduce trade

Question

Quizplus · Accepted Answer

Floating exchange rates can lead to uncertainty about future currency values, which may deter international trade and investment due to the risk of adverse currency movements affecting the profitability of such ventures.

The Downside (Negative Aspect) Associated with a Free and Floating