In 1985 and 1986, U.S.interest rates fell relative to interest rates in Japan.Under floating exchange rates, this would lead to the dollar's exchange value depreciating against the yen.

Question

Quizplus · Accepted Answer

When interest rates in one country fall relative to another, under floating exchange rates, the currency of the country with the lower interest rates will typically depreciate in value against the other currency. Therefore, the dollar's exchange value would depreciate against the yen in this scenario.