If the Fed announces that it will decrease U.S. interest rates, and the European Central Bank takes no action, then the value of the euro will ____ against the value of U.S. dollar (holding other factors constant).
A)be unchanged
B)depreciate
C)appreciate
D)depreciate but only briefly

Question

Quizplus · Accepted Answer

When the Fed decreases U.S. interest rates, it typically makes holding U.S. dollar-denominated assets less attractive compared to assets in currencies with relatively higher interest rates. This decrease in demand for the U.S. dollar relative to the euro (assuming the European Central Bank takes no action) would lead to an appreciation of the euro against the U.S. dollar.

If the Fed Announces That It Will Decrease U