Assume that interest rates in London increase relative to those in Switzerland.Other things equal, under a floating exchange rate system one would expect the pound (relative to the Swiss franc) to
A) depreciate due to the increased demand for pounds.
B) depreciate due to the increased demand for Swiss francs.
C) appreciate due to the increased demand for Swiss francs.
D) appreciate due to the increased demand for pounds.

Question

Quizplus · Accepted Answer

When interest rates in London increase relative to those in Switzerland, investors are likely to move their capital to London to take advantage of the higher returns. This increases the demand for pounds as investors need to convert their currency into pounds to invest in London, leading to an appreciation of the pound relative to the Swiss franc.

Assume That Interest Rates in London Increase Relative to Those