Which of the following is an important factor in exchange rate movements in the very short run?
A) Changes in relative GDPs.
B) Changes in relative tastes for foreign goods.
C) Changes in relative interest rates.
D) Changes in inflation.
E) None of the above.

Question

Quizplus · Accepted Answer

Changes in relative interest rates are an important factor in exchange rate movements in the very short run because they affect the flow of capital across borders. If interest rates in one country increase relative to another country, investors may shift their funds to take advantage of higher returns, which can cause the currency to appreciate.

Which of the Following Is an Important Factor in Exchange