Which of the following events would most likely result in an appreciation of the U.S. dollar?
A) U.S. inflation is very high.
B) The Fed indicates that it will raise U.S. interest rates.
C) Future U.S. interest rates are expected to decline.
D) Japan is expected to increase interest rates in the near future.

Question

Which of the following events would most likely result in an appreciation of the U.S. dollar?​
A) ​U.S. inflation is very high.
B) ​The Fed indicates that it will raise U.S. interest rates.
C) ​Future U.S. interest rates are expected to decline.
D) ​Japan is expected to increase interest rates in the near future.

Quizplus · Accepted Answer

If the Fed indicates that it will raise U.S. interest rates, it signals to investors that holding U.S. assets will yield a higher return, making the dollar more attractive and leading to an increase in demand, thus resulting in an appreciation of the dollar. Higher U.S. inflation, an expectation of future U.S. interest rate declines, or Japan's expected interest rate increase would not necessarily lead to an appreciation of the U.S. dollar.

Which of the Following Events Would Most Likely Result in an Appreciation