When the "real" interest rate is relatively low in a given country, then the currency of that country is typically expected to be:
A) weak, since the country's quoted interest rate would be high relative to the inflation rate.
B) strong, since the country's quoted interest rate would be low relative to the inflation rate.
C) strong, since the country's quoted interest rate would be high relative to the inflation rate.
D) weak, since the country's quoted interest rate would be low relative to the inflation rate.

Question

Quizplus · Accepted Answer

When the "real" interest rate is low, it means that the interest rate is not high enough to offset the inflation rate. This will lead to a decrease in the demand for the currency, which will result in a weaker currency. Therefore, option D is the correct choice.

When the "Real" Interest Rate Is Relatively Low in a Given