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Capital Flows and Currency Value
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An increase in interest rates in the European Union will always lead to a depreciation of the U.S. dollar against the Euro, due to a guaranteed shift in capital flows. True or False?

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Learning Path

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Choose the Best Answer

A

True

B

False

Understanding the Answer

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Answer

The statement is false. While an increase in interest rates in the European Union can attract more investors to the Euro, which might strengthen it against the U. S. dollar, it doesn't guarantee that the dollar will always depreciate. Currency values are influenced by many factors, including economic growth, inflation, and political stability.

Detailed Explanation

Interest rates can affect currency value, but they don't always lead to a change. Other options are incorrect because Some might think higher interest rates always mean a weaker dollar.

Key Concepts

Interest Rates
Capital Flows
Currency Valuation
Topic

Capital Flows and Currency Value

Difficulty

medium level question

Cognitive Level

understand

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