Question

Suppose that the government of Chile reduces one of its key interest rates to stimulate its economy. How will the values of several other Latin American currencies change against the Chilean peso in response to the news (assuming that these countries are not expected to lower their interest rates in the future)?

	A.	they will increase.
	B.	they will decrease.
	C.	they will remain the same.

Answer 1

A. they will increase.

B. they will decrease.

C.they will remain the same.

The Exchange Rates of countries are partially driven by relative interest rates of the concern countries. The reduction one of its key Chile's interest rates is not as attractive to investors ,it has reduced the cash flow in the country but other Latin American countries where interest rates have not declined so investment has been shifted to these countries which would increase their values.