An Increase in the Foreign One-Year Interest Rate Expected to Occur

question 12

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

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Definitions:

Procedural Memory

A type of long-term memory for executing tasks and skills, involving how to do things, and typically acquired through repetition and practice.

Factual Information

Data based on facts and real events, which can be proven true through evidence and observation.

Long-Term Memory

A type of memory responsible for the storage of information over extended periods, potentially for a lifetime, including facts, experiences, and skills.

Consolidation

The process of stabilizing a memory trace after its initial acquisition, making it less susceptible to forgetting and interference.