ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Changes in relative interest rates affect investment in foreign securities.
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Investment influences the demand for currencies.
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Changes in relative interest rates affect the equilibrium exchange rate.
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Investment does not influence the supply of currencies.
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Detailed explanation-1: -A country’s currency will rise in value when interest rates are high because higher rates will attract more foreign capital. This will lead to an increase in exchange rates and a strong currency. As a general rule, the higher the interest rates, the more foreign investment a country is likely to attract.
Detailed explanation-2: -An exchange rate is a rate at which one currency will be exchanged for another currency. Most exchange rates are defined as floating and will rise or fall based on the supply and demand in the market.
Detailed explanation-3: -Answer and Explanation: There is a direct relationship between the relative real interest rate of two countries and the exchange rate of their currencies as if there will be increase in the real interest rate, then foreign imports will increase as other countries would like to invest in the domestic country.
Detailed explanation-4: -Inflation. Stock market conditions. International Investors. Fiscal deficit and government borrowings. 08-Aug-2022