Which of the following is NOT a factor that causes substantial exchange rate volatility?
A) Unexpected news
B) Changes in expectations about future trade flows
C) Instantaneous adjustments by goods and services prices to shocks.
D) Instantaneous reactions by financial assets markets to shocks

Question

Quizplus · Accepted Answer

Instantaneous adjustments by goods and services prices to shocks are not a factor that causes substantial exchange rate volatility. While changes in goods and services prices can affect exchange rates, they do not typically cause sudden and large fluctuations in currency values. The other factors listed (unexpected news, changes in expectations about future trade flows, and instantaneous reactions by financial assets markets to shocks) can all contribute to substantial exchange rate volatility.

Which of the Following Is NOT a Factor That Causes