Asked by Alier Alfonso-Ramos on Jul 09, 2024
Verified
If currency speculators believe South Korea will have much lower inflation in the future than the United States, then this event is most likely to cause the South Korean won 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.
Currency Speculators
Individuals or entities that buy and sell currencies with the aim of profiting from changes in exchange rates.
Inflation
A general increase in prices and a decrease in the purchasing value of money.
South Korean Won
The official currency of South Korea, represented by the symbol ₩ and the ISO code KRW.
- Examine the consequences of inflation and interest rates on currency strengthening or weakening.
- Recognize the role of currency speculators in exchange rate movements.
Verified Answer
CT
Camila TrimminoJul 11, 2024
Final Answer :
D
Explanation :
Lower inflation in South Korea compared to the United States makes the South Korean won more attractive to investors, leading to its appreciation. Conversely, the U.S. dollar would depreciate relative to the won.
Learning Objectives
- Examine the consequences of inflation and interest rates on currency strengthening or weakening.
- Recognize the role of currency speculators in exchange rate movements.
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