Under floating exchange rates, expectations of higher interest rates are likely to cause an ____ of the exchange rate?
Correct answer: B. appreciation
- A. depreciation
- B. appreciation
- C. fall
- D. devaluation
Explanation
Expectations of higher interest rates attract foreign capital because investors seek higher returns on assets denominated in that currency. The resulting increased demand causes the currency to appreciate.
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About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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