Asset Market Approach Discussion
ANSWER
According to the asset-market economics theory, shifts in the supply and demand for financial assets denominated in various currencies cause changes in exchange rates. When U.K. inflation rates are anticipated to rise in this setting (ceteris paribus, which implies other factors are held constant), it may have an impact on the exchange rate between the U.S. dollar ($, USD) and the British pound (£, GBP) in both the short- and long-term.
Short-Run Modifications:
Impact on Interest Rates: The central bank (such as the Bank of England) may respond by raising interest rates if it anticipates rising inflation in the U.K. To reduce inflationary pressures, this is done. Higher interest rates may draw foreign investment looking for higher returns. The demand for British assets, as a result,
Question Description
I’m stuck on a Economics question and need an explanation.
What happens to the exchange rate, according to the asset-market approach, when the U.K. inflation rates are expected to increase, ceteris paribus? Answer the question in terms of both short-run and long-run changes in the exchange rate ($/£). Make sure to explain the reason for each change.
Fill in the order form and submit all your files, including instructions, rubrics, and other information given to you by your instructor.
Once you complete filling the forms, complete your payment. We will get the order and assign it to a writer.
When your order is completed, it’s assigned to an editor for approval. The editor approves the order.
Once approved, we will upload the order to your account for you to download. You can rate your writer or give your customer review.
