Under a system of floating exchange rates the pound would depreciate in value if there occurs ?
Correct answer: D. falling interest rates in Britain
- A. Price inflation in the United States
- B. an increase in U.S real income
- C. a decrease in the British money supply
- D. falling interest rates in Britain
Explanation
Falling British interest rates make pound-denominated assets less attractive, encouraging capital outflows and reducing demand for pounds. The resulting lower demand causes the pound to depreciate.
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