Asked by Ashley Fondeur on Jul 06, 2024
Verified
If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound to
A) depreciate and the U.S. dollar to depreciate.
B) depreciate and the U.S. dollar to appreciate.
C) appreciate and the U.S. dollar to appreciate.
D) appreciate and the U.S. dollar to depreciate.
Real Interest Rates
The interest rate adjusted for inflation, representing the true cost of borrowing and the real yield to lenders.
British Pound
The United Kingdom's currency, a major global currency involved in international trading.
U.S. Dollar
The official currency of the United States, widely used as a benchmark in international trade and finance.
- Determine how inflation and interest rates influence the rise or fall in currency value.
Verified Answer
SF
st fort SchilerJul 12, 2024
Final Answer :
D
Explanation :
When real interest rates rise in the United Kingdom relative to the United States, it makes holding assets denominated in British pounds more attractive, leading to an inflow of capital into the UK. This increased demand for the pound causes it to appreciate, while the U.S. dollar, in comparison, depreciates.
Learning Objectives
- Determine how inflation and interest rates influence the rise or fall in currency value.
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