Suppose interest rates fall sharply in the United States but are unchanged in Great Britain. Other things equal, under a system of freely floating exchange rates, we can expect the demand for pounds in the United States to
A) decrease, the supply of pounds to increase, and the dollar to appreciate relative to the pound.
B) increase, the supply of pounds to increase, and the dollar may either appreciate or depreciate relative to the pound.
C) increase, the supply of pounds to decrease, and the dollar to depreciate relative to the pound.
D) decrease, the supply of pounds to increase, and the dollar to depreciate relative to the pound.
Correct Answer:
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