ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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An increase; appreciate
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An increase; depreciate
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A decrease; appreciate
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A decrease; depreciate
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Detailed explanation-1: -A rise in domestic interest rates will attract foreign capital inflows and thereby bring on an appreciation of domestic currency, i.e., the exchange rate and the interest rate differential move in the same direction.
Detailed explanation-2: -Generally, higher interest rates increase the value of a country’s currency. Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country’s currency.
Detailed explanation-3: -Currency appreciation is an increase in the value of one currency in relation to another currency. Currencies appreciate against each other for a variety of reasons, including government policy, interest rates, trade balances, and business cycles.
Detailed explanation-4: -Higher interest rates can increase a currency’s value. They can attract more overseas investment, which means more money coming into a country and higher demand for the currency.