will the dollar appreciate or depreciate in a flexible exchange rate system if t

Question

will the dollar appreciate or depreciate in a flexible exchange rate system if the European Central Bank increases interest rates in Europe while U.S. interest rates remain at current levels, cp. will the dollar appreciate or depreciate in a flexible exchange rate system if the European Central Bank increases interest rates in Europe while U.S. interest rates remain at current levels, cp. will the dollar appreciate or depreciate in a flexible exchange rate system if the European Central Bank increases interest rates in Europe while U.S. interest rates remain at current levels, cp.

Explanation / Answer

An increase in interest rate will lead to decrease in demand of money. which means that euro demand will be reduced , so people will have more confidence in dollar as the interest rate is till the same. so dollar will aprreciate.

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