If real interest rates rise in the United Kingdom relative to the United States, then this event is most likely to cause the British pound to
A) depreciate and the U.S. dollar to depreciate.
B) depreciate and the U.S. dollar to appreciate.
C) appreciate and the U.S. dollar to appreciate.
D) appreciate and the U.S. dollar to depreciate.

Question

Quizplus · Accepted Answer

When real interest rates rise in the United Kingdom relative to the United States, it makes holding assets denominated in British pounds more attractive, leading to an inflow of capital into the UK. This increased demand for the pound strengthens it, causing the pound to appreciate and the U.S. dollar to depreciate in comparison.

If Real Interest Rates Rise in the United Kingdom Relative