An Increase in the Foreign One- Year Interest Rate Expected

question 41

Multiple Choice

An increase in the foreign one- year interest rate expected to occur in, say, two years will, all else fixed, have which of the following effects in a flexible exchange rate regime?

• A) The real exchange rate will decrease with no change in the nominal exchange rate.
• B) Both the real and the nominal exchange rate will decrease.
• C) The nominal exchange rate will decrease and the real exchange rate will increase.
• D) The nominal exchange rate will decrease with no change in the real exchange rate.
• E) No change in either the nominal or real exchange rate.

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Definitions:

Perception Influences

The factors that affect how individuals perceive the world around them, including past experiences, expectations, and cultural backgrounds.

Organized

Being arranged in a systematic way, especially on a large scale.

Work Environment

Refers to the physical and psychological conditions under which employees perform their job duties.

Stereotypes

Overgeneralized beliefs about a particular category of people, which can lead to prejudicial attitudes and discrimination.