n article in the Wall Street Journal contained the following observation
An article in the Wall Street Journal contained the following observation: “Falling interest rates tend to boost bond prices … but weigh on currencies.”a. Why do falling interest rates increase bond prices?
b. Why would falling interest rates “weigh on currencies”?
Answer:
a. The falling interest rates increase the present value of bonds, raising bond prices.
b. Falling interest rates decrease the demand for the financial assets of the country which decreases the demand for its currency. The decrease in the demand for the currency decreases its foreign exchange value. Falling interest rates put downward pressure on the foreign exchange value of currencies.
页:
[1]