Which one of the following statements concerning exchange rate changes is correct?
A)Changes in expected,as well as actual,inflation will cause exchange rate changes.
B)Changes in expected,but not actual,inflation will cause exchange rate changes.
C)An increase in a currency's expected rate of inflation makes that currency less expensive to hold over time,all other things being equal.
D)An increase in a currency's expected rate of inflation makes that currency more in demand at the same price,all other things being equal.

Question

Quizplus · Accepted Answer

Both expected and actual inflation can affect exchange rates as they impact a currency's purchasing power and attractiveness to investors. Higher inflation leads to a decrease in the value of a currency, thus leading to lower exchange rates.

Which One of the Following Statements Concerning Exchange Rate Changes