The ECB's new chairperson considers that the current policy of monetary expansion poses more risks than...
The ECB's new chairperson considers that the current policy of monetary expansion poses more risks than solutions and decides to raise the interest rate. How does it affect the euro/dollar exchange rate?
Homework Answers
If there is an increase in the euro interest rate, it is likely to increase the capital inflow in the European countries which will appreciate the euro because its demand will increase. At the same time the demand for dollar will relatively decline. As a result there is a dollar depreciation and Euro appreciation.
The euro dollar exchange rate will therefore increase.
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The ECB's new chairperson considers that the current policy of
monetary expansion poses more risks than...
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