Suppose expansionary monetary policy in the United States leads to interest rates falling to 2 percent, while tight monetary policy in Switzerland leads to interest rates rising to 8 percent.With floating exchange rates, the dollar would appreciate against the franc.

Question

Quizplus · Accepted Answer

With lower interest rates in the United States compared to Switzerland, investors would likely seek the higher returns available in Switzerland, leading to a depreciation of the dollar against the franc as demand for francs increases to invest in Swiss assets.

Suppose Expansionary Monetary Policy in the United States Leads to Interest