Under a system of floating exchange rates, the Swiss franc would depreciate in value if which of the following occurs?
A) price inflation in France
B) an increase in U.S. real income
C) a decrease in the Swiss money supply
D) falling interest rates in Switzerland

Question

Quizplus · Accepted Answer

Under a floating exchange rate system, a currency's value is determined by the market forces of supply and demand. Falling interest rates in Switzerland would make Swiss investments less attractive to foreign investors, reducing the demand for Swiss francs and leading to its depreciation.

Under a System of Floating Exchange Rates, the Swiss Franc