Which of the following problems will most likely occur with a system of flexible exchange rates?

A) macroeconomic instability as exports and imports fluctuate with the exchange rates
B) government favoritism toward selected importers of goods and services
C) the emergence of black markets for foreign currency
D) distortions in trade patterns away from the pattern suggested by comparative advantage

Flexible Exchange Rates

A currency system where the price of a country's currency is set by the forex market based on supply and demand relative to other currencies.

Macroeconomic Instability

Occurs when an economy experiences high levels of volatility in factors such as inflation, growth rates, and unemployment, often leading to economic downturns.

Comparative Advantage

The ability of an entity to produce a good or service at a lower opportunity cost than others, promoting trading benefits.