Asked by Mason Smith on Jul 13, 2024
Verified
When real interest rates in other countries rise relative to that in the U.S., other things being equal, we would expect the U.S. dollar to
A) appreciate.
B) depreciate.
C) inflate.
D) deflate.
Real Interest Rates
The interest rate modified to account for inflation, indicating the actual cost of borrowing and the genuine return for investors.
Appreciate
To increase in value or worth over time, commonly used in financial contexts.
Depreciate
The process by which an asset's value decreases over time due to use, wear and tear, or obsolescence.
- Study the role of macroeconomic elements such as inflation and interest rates in determining currency values.
Verified Answer
MA
Maysa Al-HijaziJul 15, 2024
Final Answer :
B
Explanation :
When real interest rates in other countries rise relative to those in the U.S., it makes investments in those countries more attractive, leading to an outflow of capital from the U.S. to those countries. This increases the supply of U.S. dollars in the foreign exchange market, leading to a depreciation of the U.S. dollar.
Learning Objectives
- Study the role of macroeconomic elements such as inflation and interest rates in determining currency values.
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