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If the Interest Rates in a Country Are Higher Relative

Question 1

Multiple Choice

If the interest rates in a country are higher relative to interest rates in other countries,the short-term and long-term effects on the value of the currency of that country are:


A) the same,since interest rates do not affect currency values.
B) the same,since the central bank of the country will lower interest rates so that interest rates will not affect currency value.
C) the value of the currency will increase as capital flows into the country to take advantage of the higher interest rates,but the value of the currency will decline when investors withdraw their funds from that country.
D) the value of the currency will decrease as confidence in the country's currency suffers,but the value of the currency will eventually rise as confidence is restored.

Correct Answer:

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