“An increase in the US Federal Reserve interest rate might lead to hyperinflation in some highly indebted countries.” Do you agree?
When the Federal Reserve increases the federal funds rate, the investment in dollars becomes more attractive for investors. This is because now, the interest rates which they receive by saving dollar is higher than other currencies. As a result of this, Dollars become an attractive investment tool for investors.
In response, the value of dollar appreciates as its demand is hiked, and on the contrary a large part of the currency is reduced as consumers limit their spending due to increased loan costs.
As the dollar is higher in value, the exchange rate when compared to other currencies across the globe, is also on the higher side. This results in a situation wherein any country which has a debt with the United States would have to pay additional money to be able to pay off the debt. This additional money, is usually printed as countries do not generate sufficient revenue in such a short period of time to be able to match up with the revision in exchange rates.
As more currency enters into printing stage to pay off the debt, it losses value both domestically and internationally and hyper inflation or increase of prices beyond normal limit takes place.
Thus, we agree to the fact that due to Federal Reserve increasing the interest rates, dollars become expensive to other currencies as it becomes lucrative for business owners to invest in the currency and as exchange rates change it becomes tough for countries to be able to pay off their debts
Please feel free to ask your doubts in the comments section.
“An increase in the US Federal Reserve interest rate might lead to hyperinflation in some highly...
If the Fed wanted to reduce the federal funds interest rate, it might: A. increase the discount rate. B. increase the required reserve ratio. C. buy government securities. D.sell government securities. E. do any of the above except c.
Before the US Federal Reserve introduced an interest rate on bank reserves held at the Fed, A. the Fed fund rate could go very high. B. the Fed fund rate could not reach the target. C. the Fed fund rate could go very low. D. the Fed fund rate could not fluctuate.
In December 2015, the Federal Reserve increased its policy interest rate target. This was the first increase since cutting the target to close to zero in December 2008 to combat the economy weakness associated with the financial crisis. If central banks use interest rates to moderate business cycle swings in the economy, what might you infer from this decision about the Fed’s view of the economy?
Why has the Federal Reserve chosen to focus on the federal funds rate rather than some other interest rate as a tool of monetary policy?
In 2018, the Federal Reserve, the Central Bank for the U.S., raised the Federal Funds Rate three times from 1.0% in 2017 to 2.20% in November of 2018. The Fed is likely to continue increasing interest rates in 2019 and 2020. (1) What effect is a higher Federal Funds Rate likely to have on the number of loans banks make, on consumption and on investment? Explain why. (2) Why is the Fed raising interest rates now? Explain how the current...
Federal Reserve Chairman Jerome Powell announced the central bank will lower interest rates for the first time since the Great Recession in 2008 to help stave off the possibility of an economic downturn. Federal Reserve Chairman Jerome Powell announced the Fed will lower its target federal funds interest rate by 25 basis points to a range of 2.0% to 2.25%. Powell stated the Fed still viewed the outlook for the U.S. economy as favorable, but the interest rate cut is...
1.) Which interest rate is targeted by the Federal Reserve? Question 11 options: Discount rate Prime rate Federal funds rate Student loan rate 2.) When the federal reserve wishes to increase the interest rate, it sells bonds on the open market buys bonds on the open market increases taxes decreases taxes
Why might the Federal Reserve have raised the discount rate three times this year, from 0% to 2%? What is the Fed trying to accomplish with these actions? How do you if the actions are working? What might be problems with these actions?
The Federal Reserve believes that a certain rate of interest on Federal Funds is associated with price stability (which is 2% rate of inflation). However, the Federal Funds rate tends to fluctuate with the changes in the demand for federal funds by the banking system. Hence, to maintain the Federal Funds rate at the desired rate or to raise it or lower it to a new rate the Federal Reserve System undertake open market operations, or few other measures. Draw...
Discount rate ( interest rate that banks pay to borrow reserves from the Federal Reserve) is determined by -Federal Reserve Board of Governors -Federal Reserve banks -commercial banks