ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It would increase
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It would decrease
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It would remain the same.
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None of the above
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Detailed explanation-1: -In an idealised example, when interest rates rise, investors are attracted to a currency and invest in it more heavily. As more investors are attracted, demand for the currency increases, and its value goes up. These flows of investment are known in economics as ‘hot money flows’.
Detailed explanation-2: -Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise.
Detailed explanation-3: -A variety of economic factors can contribute to depreciating the U.S. dollar. These include monetary policy, rising prices or inflation, demand for currency, economic growth, and export prices.
Detailed explanation-4: -Higher interest rates tend to attract foreign investment, increasing the demand for and value of the home country’s currency. Conversely, lower interest rates tend to be unattractive for foreign investment and decrease the currency’s relative value.