Question

The Fed will meet next week to decide the interest rate on the U.S. dollar. The current interest rate is 0.25%. The market’s consensus is that the Fed will leave the rate unchanged in the coming meeting. According to the asset pricing approach, the U.S. dollar will appreciate if the Fed raises the interest rate to 0.5%.

Select one:

True

False

Answer 1

increase in interest rate will always be having a positive impact into the overall exchange rate because increase in the interest rate is taken as a positive factor that the overall economy is in good shape so when the Federal Reserve is going to increase the interest rate in the United States economy, it would mean that the United States economy is in good shape and it is going to have a good growth rate so the United States dollar is going to appreciate.

The given statement is TRUE.