Given floating exchange rates, assume that the Swiss decrease their import purchases from Italy while the Italians increase their purchases of Swiss government securities.The first action by itself would lead to a(n) ____ of the franc against the lira while the second action by itself would lead to a(n) ____ of the franc against the lira.
A) appreciation, appreciation
B) depreciation, depreciation
C) appreciation, depreciation
D) depreciation, appreciation

Question

Quizplus · Accepted Answer

When the Swiss decrease their import purchases from Italy, there is less demand for the lira, leading to an appreciation of the franc against the lira. When Italians increase their purchases of Swiss government securities, there is more demand for the franc, also leading to an appreciation of the franc against the lira.

Given Floating Exchange Rates, Assume That the Swiss Decrease Their