China should produce more computers and fewer TVs. All of the above are true. The purchasing-power parity theory of exchange rate determination holds that in the short run, the cost of labor really sets the exchange rate. The system is a gold-exchange standard, based on a fixed value for a key currency. It serves as a stabilizing asset.
Gold backs each currency and therefore the system as a whole.
It has no significant role. Differences in natural endowments such as climate. Differences in skills of labor force. Differences in endowments of natural resources. Inability to attain economies of scale in all industries.