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An article in the Wall Street Journal in July 2020 discussed the falling value of the U.S. dollar in exchange for other currencies. The article noted that the decline in the value of the dollar "has been accelerated by the Fed's decision to slash interest rates to near zero, removing much of the differential between the U.S. and other developed countries." Why would the Fed reducing interest rates lead to a dooling in

An article in the Wall Street Journal in July 2020 discussed the falling value of the U.S. dollar in exchange for other currencies. The article noted that the decline in the value of the dollar "has been accelerated by the Fed's decision to slash interest rates to near zero, removing much of the differential between the U.S. and other developed countries." Why would the Fed reducing interest rates lead to a dooling in

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter19: International Finance And The Foreign Exchange Market
Section: Chapter Questions
Problem 5CQ
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An article in the Wall Street Journal in July 2020 discussed the falling value of the U.S. dollar in exchange for other currencies. The article noted that the decline in the value of the dollar "has been accelerated by the Fed's decision to slash interest rates to near zero, removing much of the differential between the U.S. and other developed countries." Why would the Fed reducing interest rates lead to a decline in the value of the dollar? OA. The lower interest rate makes foreign financial assets less attractive, decreasing the supply of dollars. OB. The Fed lowers interest rates by selling dollars in the foreign exchange market, this increases the supply of dollars. OC. The lower interest rate makes U.S. financial assets less attractive causing a decrease in demand for dollars. OD. The lower interest rate makes U.S. financial assets more attractive causing an increase in demand for dollars.
Transcribed Image Text:An article in the Wall Street Journal in July 2020 discussed the falling value of the U.S. dollar in exchange for other currencies. The article noted that the decline in the value of the dollar "has been accelerated by the Fed's decision to slash interest rates to near zero, removing much of the differential between the U.S. and other developed countries." Why would the Fed reducing interest rates lead to a decline in the value of the dollar? OA. The lower interest rate makes foreign financial assets less attractive, decreasing the supply of dollars. OB. The Fed lowers interest rates by selling dollars in the foreign exchange market, this increases the supply of dollars. OC. The lower interest rate makes U.S. financial assets less attractive causing a decrease in demand for dollars. OD. The lower interest rate makes U.S. financial assets more attractive causing an increase in demand for dollars.
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