When exchange rates are volatile:

A. international economic activity is increased.
B. firms engage in more trade.
C. firms are assured that they will be able to earn profits from currency swings.
D. trade and cross-border financial and labor flows are reduced as uncertainty and transaction costs take their toll.

The correct answer is letter "D": trade and cross-border financial and labor flows are reduced as uncertainty and transaction costs take their toll.

Explanation:

Currency exchange rates are the value given to different foreign currencies. They have a direct impact on international trade because moreover when a company handles operations worldwide because their increase or decrease in value generates uncertainty in the market. Firms are unable to predict if they can make a profit in front of constant fluctuations in the exchange rates.  

Therefore, corporations prefer to make businesses in countries where there is economic and politic stability which usually results in having a stable currency exchange rate.

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