Research indicates which of the following factors play a major role in the determination of U.S. exchange rates?
A)changes in U.S. real income
B)changes in the dollar price of U.S. goods relative to the dollar price of foreign goods
C)changes in foreign interest rates relative to U.S. interest rates
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Research indicates that all of the factors listed (changes in U.S. real income, changes in the dollar price of U.S. goods relative to the dollar price of foreign goods, and changes in foreign interest rates relative to U.S. interest rates) play a significant role in determining U.S. exchange rates. For example, a higher U.S. real income may lead to increased demand for foreign goods, which could lead to a decrease in the exchange rate. Similarly, a higher dollar price for U.S. goods relative to foreign goods could reduce demand for U.S. exports and increase the exchange rate. Finally, higher foreign interest rates relative to U.S. interest rates may attract investment away from the United States, which could also lead to a decrease in the exchange rate.

Research Indicates Which of the Following Factors Play a Major