When a country uses a flexible (or floating)exchange rate,_____ will cause its currency to depreciate in the foreign exchange market.

Question

Quizplus · Accepted Answer

All of the answers are correct because in a flexible exchange rate system, the currency value is determined by market forces of supply and demand. An increase in interest rates abroad would decrease demand for the country's currency, causing it to depreciate. A decrease in domestic interest rates would also decrease demand for the currency, leading to depreciation. A decrease in foreign income would lower demand for the country's exports, leading to a decrease in demand for their currency and depreciation.

When a Country Uses a Flexible (Or Floating)exchange Rate,_____ Will