Author Question: What will happen to the exchange rate between the British pound and the U.S. dollar if British ... (Read 289 times)

sdfghj · **on:** Jun 29, 2018

What will happen to the exchange rate between the British pound and the U.S. dollar if British prices increase?

What will be an ideal response?

Question 2

What will happen to the exchange rate between the euro and the U.S. dollar if U.S. interest rates increase?

What will be an ideal response?

Missbam101 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

British price increases will decrease the supply of dollars, so all else equal the dollar will appreciate in value relative to the pound. British price increases will also decrease the demand for British pounds in the United States.

Answer to Question 2

Higher U.S. interest rates will increase the demand for dollars, so all else equal the dollar will appreciate in value relative to the euro.