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

The given statement is TRUE because when there would be an unexpected increase in the interest rate into the overall economy, It should be taken that the economy is stronger and to counter the the inflation in the economy, the Federal Reserve is trying to increase interest rate because the money flow is increasing and the demand is increasing so United States dollar will also be increasing.

The given statement is TRUE because United States dollar will appreciate.