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Which of the following is true if, all other things being equal, if the USD rallies...

Which of the following is true if, all other things being equal, if the USD rallies 1% versus the GBP (British pound)? Check all that apply. (There are 2 correct answers)

a) The value of BP ADRs will decrease all other things being equal. The value of BP ADRs will decrease all other things being equal.

b) US companies that earn a large percentage of their profits in the UK will exceed EPS expectations all other things being equal.

c) The US stock market will rally sharply all other things being equal

d) More Americans will want to visit London all other things being equal.   

e) The odds of a recession have increased all other things being equal.

Business   Economics   
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Answer #1

Options (d) and (e).

If USD rallies against GBP, it means USD has appreciated against GBP, so 1 USD buys 1% more units of GBP than before.

When USD appreciates, US tourists can buy more British goods using 1 dollar, so more Americans will want to visit London (equivalently, import of British services will increase).

When USD appreciates, US exports decrease and imports increases, which decreases US net exports. US aggregate demand will decrease, reducing US GDP and increasing the probability of a recession.

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