Explain why you agree or disagree with the followingstatements. a. A country tha

Question

Explain why you agree or disagree with the followingstatements. a. A country that grows faster then its major trading partnerscan expect the international value of it's currency todepreciate. b. A nation whose intrest rate is rising more rapidly thaninterest rates in other nations can expect the international valueof its currency to appreciate. c. A coutnry's currency will appreciate if its inflation rateis less then that of the rest of the world. Explain why you agree or disagree with the followingstatements. a. A country that grows faster then its major trading partnerscan expect the international value of it's currency todepreciate. b. A nation whose intrest rate is rising more rapidly thaninterest rates in other nations can expect the international valueof its currency to appreciate. c. A coutnry's currency will appreciate if its inflation rateis less then that of the rest of the world.

Explanation / Answer

(a) This statement is true. If high rates of economic growth meanthat the real incomes of a country?s citizens are rising more rapidly than in other countries,its imports will rise more than its exports. The demand for foreign currency by its citizenswill increase more than the supply of foreign currency, causing the value of the domesticcurrency to decline. (b) This statement is true. If domestic real interest rates areincreasing more quickly than those in other countries, foreign financial investment will be attractedto the country, causing a rise in the supply of foreign currency and therefore an appreciation ofthe country?s currency. (c) This statement is true. If a country?s inflation rate is lowerthan rates in other countries, the foreign prices of its products will decline relative toforeign-made products, increasing exports and the supply of foreign currency. And the domestic pricesof foreign imports will increase relative to domestically made goods, decreasing the demandfor foreign currency. Both factors will cause the country?s currency to appreciate.

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