Two currencies existed in Iraq before the U.S. invasion and subsequent conflict. What lessons are there for students of exchange rates?
a. Exchange rate values are influenced not only by economic fundamentals but by political events that change long-run expectations of future currency values.
b. Iraq did not back its currency with gold and, therefore, it was worth much less than the U.S. dollar.
c. Eventually, each Iraqi sect developed its own currency and payments system.
d. Exchange rate values are solely influenced by economic policy.
Ans: a. Exchange rate values are influenced not only by economic fundamentals but by political events that change long-run expectations of future currency values.
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