If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was a

Question

Quizplus · Accepted Answer

A domestic interest rate increase would cause a shift in demand for the currency, which would result in a change in the exchange rate. This would only happen if the nation has a flexible exchange rate, where the exchange rate is determined by market forces. A nominally fixed exchange rate or a fixed exchange rate would not change, as the exchange rate is fixed by the central bank. A crawling peg would only change if the central bank adjusts the peg.

If a Nation's Central Bank Increased Domestic Interest Rates, the Nation's