An increase in the expected exchange rate of euro in terms of the U.S. dollar wo
ID: 1148271 • Letter: A
Question
An increase in the expected exchange rate of euro in terms of the U.S. dollar would bring about the following effects:
Traders will start selling bonds denominated in euros and buying bonds denominated in dollars.
Traders will start selling bonds denominated in dollars and buying bonds denominated in euros.
The euro depreciates and the dollar appreciates.
(a) and (c).
None of the above.
Traders will start selling bonds denominated in euros and buying bonds denominated in dollars.
Traders will start selling bonds denominated in dollars and buying bonds denominated in euros.
The euro depreciates and the dollar appreciates.
(a) and (c).
None of the above.
Explanation / Answer
The correct answer is A. This refers to a appreciation of the euro with respect to the dollar and so people will sell bonds in euros and buy bonds in dollars. The correct answer is A.
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