In October 2008, central banks around the world coordinated a decrease in interest rates. Ben Bernanke, Chairman of the Federal Reserve stated that ʺpolicy makers will remain in close contact, monitor developments closely and stand ready to take additional steps should conditions warrant.ʺ
If all the banks enacted the policy simultaneously, the U.S. interest rate differential would
And so the U.S. exchange rate would .

Question

Quizplus · Accepted Answer

If all central banks decrease interest rates simultaneously, the interest rate differential remains unchanged, and thus the exchange rate would not be affected by interest rate differentials.

In October 2008, Central Banks Around the World Coordinated a Decrease