Question

Assume there is an international crisis. What would you expect to happen the value of the dollar versus other currencies and what would happen to the yields on 10-year treasury bonds?

Answer 1

The preference for dollar-denominated asset increases during an international crisis. During an international crisis there is a risk of losing money in most of the countries. The dollar is the only currency that is considered to be strong as compared to the others.

Hence in times of international prices the demand for Dollar denominated assets increases manifold. Investors perceive least risk in dollar denominated assets. Due to the forces of demand and supply with an increase in the demand for the dollar it is expected that the price of the dollar would also increase comparative to other currencies