Purchase Solution

Suppose interest rates fall sharply in the U.S. but are unchanged in Great Britain.

Not what you're looking for?

Ask Custom Question

1. Suppose interest rates fall sharply in the U.S. but are unchanged in Great Britain. Other things equal, under a system of freely floating exchange rates we can expect the demand for pounds in the U.S. to:
A. decrease,the supply pounds to increase, and the dollar to appreciated relative to the pound.
B. increase, the supply of pounds to increase, and the dollar may either appreciate or depreciate relative to the pound.
C. increase, the supply of pounds to decrease, and the dollar to depreciate relative to the pound.
D. decrease, the supply of pounds to increase, and the dollar to depreciate relative to the pound.

Purchase this Solution
Solution Summary

The expert determines why interest rates fall sharply in the United States by are unchanged in the United Kingdom.

Solution provided by:
Gaurav Agarwal, MS
Education
  • BE, Bangalore University, India
  • MS, University of Wisconsin-Madison
Recent Feedback
  • "Your explanation to the answers were very helpful."
  • "What does 1 and 0 means in the repair column?"
  • "Went through all of the formulas, excellent work! This really helped me!"
  • "try others as well please"
  • "Thank you, this helped a lot. I was not sure how to plug in those numbers to a formula. This was a great help. Now I have to figure out how to explain cost of capital is used in net present value analysis, and how cost of capital is used in net present value analysis. This stuff gets confusing."
Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest

This quiz introduces basic concepts of Pinterest social media

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Organizational Behavior (OB)

The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

View More Free Quizzes
Related BrainMass Solutions

  • purchasing-power-parity theory of exchange rates

    The rate of productivity growth in the United States diminishes sharply. 3. "The United States can produce product X more efficiently that can Great Britain. Yet we import X from Great Britain." Explain. 4.

  • Purchasing-power-parity theory

    The rate of productivity growth in the United States diminishes sharply. 3. "The United States can produce product X more efficiently that can Great Britain. Yet we import X from Great Britain." Explain. 4.

  • Using the PPP theory on the price of beef in Great Britain & the United States

    36514 International Exchange and Interest Rates Two countries, Great Britain and the United States, produce just one good: beef. Suppose the price of beef in the U.S. is $2.80 per pound and in Britian it is £3.70 per pound.

  • Currencies: Interest rate parity, Spot, Forward, Hedging

    In the spot market $1 U.S. equals 1.85 Brazilian real, and in the 1-year forward market 1 U.S. dollar equals 1.98 real. Interest rates on 1-year, risk-free securities are 4.8 percent in the United States.

  • Multinational Finance Management and Currency Values

    Which of the following statements is CORRECT? a. If interest rate parity holds, 6-month interest rates should be the same in the U.S., Britain, and Japan. b.

  • Federal reserve and interest rates

    So, the Fed focuses primarily on the U.S. economy, but the U.S. economy is affected by overseas economies so the Fed has to take their interest rates into account when it sets interest rates for the U.S.

  • Sharply Fallen Interest Rates

    19414 Sharply Fallen Interest Rates If I believe interest rates will fall sharply over the next sixth months, what type of bonds should I purchase to provide capital gains on the interest rate move?

  • AS/AD effects on the US economy

    40005 Public Finance Read the following excerpt from a Wall Street Journal article last fall and answer the questions which follow it: I think the ECB made a bad decision last week in keeping its interest rate unchanged.

  • Exchange rate for the British Pound

    Suppose that, at the same time, the one-year interest rate in the United States was 3.25% and the one-year interest rate in Great Britain was 4.25%. a.

View More Related Solutions