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Exchange rates

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Question 9

During a global economic slowdown, central banks across most developed nations reduce their policy interest rates by an average of 2.5%. However, to combat domestic cost-push inflation, the central bank of Country Z maintains its interest rates at their existing level.

Holding all other factors constant, what is the most likely impact on Country Z?

A

Hot money will flow out of Country Z, causing its exchange rate to depreciate.

B

Hot money will flow into Country Z, causing its exchange rate to appreciate.

C

Hot money will flow out of Country Z, causing its exchange rate to appreciate.

D

Hot money will flow into Country Z, causing its exchange rate to depreciate.

Markscheme

Exchange rates Questions

  1. A Level
  2. /Economics
  3. /Exchange rates

30 exam-style questions on OCR A Level Economics Exchange rates. Each one has a worked solution and a mark scheme showing where the marks go.

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