Country X frequently engages in trade flows with the U.S. (such as imports and exports). Country Y frequently engages in financial flows with the U.S. (such as financial investments). Everything else held constant, an increase in U.S. interest rates would affect the exchange rate of Country X's currency more than the exchange rate of Country Y's currency.

Question

Quizplus · Accepted Answer

An increase in U.S. interest rates would likely increase the demand for the U.S. dollar, causing other currencies to depreciate relative to the dollar. Therefore, both Country X and Country Y would likely experience some impact on their currency exchange rates. The extent of the impact would depend on various factors, such as the trade or financial relationships between each country and the U.S., as well as other macroeconomic conditions. Without more information, it is not possible to determine which country's currency would be affected more.

Country X Frequently Engages in Trade Flows with the U