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Interest rates and foreign exchange rates

Discuss how the United States exchange rate would react to the nominal rates, and the real interest rate.

100 words or more

Solution Preview

The government influences nominal interest rates through fiscal policy and monetary policy. When the nominal interest rate increases there are more savings by the people, and businesses tend to invest less. However, domestic assets become more attractive and foreign funds flow in to invest in the United States. This ...

Solution Summary

Impact of interest rates on US foreign exchange rate is explained in a structured manner in this response. The answer includes references used.