Deviations from the international currency parity relationships may occur because of
A)free capital movements across national boundaries.
B)barriers to cross-border financial flows.
C)perfect rationality of market participants.
D)differences in each country's productive capacity.

Question

Quizplus · Accepted Answer

Barriers to cross-border financial flows, such as capital controls or restrictions on foreign investment, can create deviations from international currency parity relationships. This can result in exchange rate fluctuations and potentially impact trade and investment. Free capital movements across national boundaries and perfect rationality of market participants are not likely to cause deviations from currency parity relationships. Differences in each country's productive capacity may impact exchange rates in the long term, but are less likely to cause short-term deviations from parity.

Deviations from the International Currency Parity Relationships May Occur Because