Which of the following statements is true? a. None of the above. b. If U.S. consumers’...
Which of the following statements is true?
a. None of the above.
b. If U.S. consumers’ income increases more than U.K. consumers’ income, the value of Pound will depreciate against $.
c. If U.S. inflation increases more than U.K. inflation, the value of Pound will depreciate against $.
d. If U.S. interest rates increase more than U.K. interest rates, the value of Pound will depreciate against $.
Homework Answers
The answer is "If U.S. interest rates increase more than U.K. interest rates, the value of Pound will depreciate against $."
When US interest rate rises and becomes higher than UK interest rate, then investors will move there money to purchase US Assets to get higher return. This will result in capital moving out of Uk assets to US, leading to increase in demand for US Dollar and thus appreciation of DOllar Against Pound.
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