Asked by Allison Dickinson on Jul 24, 2024
Verified
Relatively high rates of U.S. inflation compared to other countries will increase the supply of, and decrease the demand for, dollars in foreign exchange markets.
Foreign Exchange Markets
Global decentralized or over-the-counter markets for the trading of currencies, enabling currency conversion for international trade and investments.
U.S. Inflation
U.S. Inflation is the rate at which the general level of prices for goods and services is rising, eroding purchasing power, in the United States over time.
- Understand the impact of inflation rates on foreign exchange markets and currency valuation.
Verified Answer
DA
Daniela AzpilcuetaJul 27, 2024
Final Answer :
True
Explanation :
When the U.S. experiences relatively high inflation rates compared to other countries, its goods and services become more expensive relative to foreign goods and services. This makes U.S. exports less competitive internationally, decreasing foreign demand for dollars to buy American goods. Simultaneously, Americans may find foreign goods more attractive price-wise, increasing the supply of dollars as they exchange more dollars for foreign currencies to buy these goods.
Learning Objectives
- Understand the impact of inflation rates on foreign exchange markets and currency valuation.