Actual exchange rates can be very different from the expected rates forecasted by economists. Many interrelated factors influence the value of a floating currency.
The three most important fundamental factors are the nation's balance of payments
Situation, world political events, and:
A) the world inflation rate.
B) the country's currency value.
C) the nation's inflation rate relative to its trading partners.
D) the tax structure of the nation.
E) the supply of gold that the nation holds.

Question

Quizplus · Accepted Answer

Inflation rates relative to trading partners can have a significant impact on a currency's exchange rate. If a country's inflation rate is much higher than its trading partners, its exports become less competitive and demand for its currency may decrease, leading to a decline in exchange rates. Conversely, if a country's inflation rate is lower than its trading partners, demand for its currency may increase, leading to an appreciation in exchange rates. The other options may have some influence on exchange rates, but they are not as significant as inflation rates.

Actual Exchange Rates Can Be Very Different from the Expected