Everything else being the same,the volume of trade is likely to be:
A)larger under a flexible than under a fixed exchange rate system
B)larger under a fixed than under a flexible exchange rate system
C)equal under a flexible and fixed exchange rate system
D)any of the above

Question

Quizplus · Accepted Answer

Under a fixed exchange rate system, the predictability and stability in exchange rates reduce the risk associated with international transactions, encouraging more trade. In contrast, a flexible exchange rate system introduces exchange rate volatility, which can deter trade due to uncertainty in costs and revenues.

Everything Else Being the Same,the Volume of Trade Is Likely