If a nation's interest rates are relatively low compared to those of other countries then the exchange value of its currency will tend to ?
Correct answer: B. depreciate under a system of floating exchange rates
- A. depreciate under a system of fixed exchange rates
- B. depreciate under a system of floating exchange rates
- C. appreciate under a system of floating exchange rates
- D. appreciate under a system of floating fixed rates
Explanation
Relatively low interest rates reduce the incentive for foreign investors to hold the country’s assets, causing capital outflow and lower demand for its currency. Under floating rates, this leads to depreciation.
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