Question

exchange rate and purchasing power quick check
interest rates in brazil are rising relative to those in the united states. which of the following correctly describes the change in values of the brazilian real (brazil’s currency) and the u.s. dollar with respect to one another? (1 point)
○ the u.s. dollar is depreciating while the brazilian real is depreciating.
○ the u.s. dollar is depreciating while the brazilian real is appreciating.
○ the u.s. dollar is appreciating while the brazilian real is depreciating.
○ the u.s. dollar is appreciating while the brazilian real is appreciating.

Explanation:

When a country's (Brazil) interest rates rise relative to another (US), foreign investors are attracted to Brazil's higher - yielding assets. This increases the demand for the Brazilian real (to invest in Brazil) and decreases the demand for the U.S. dollar (as investors move funds out of US - denominated assets). An increase in demand for a currency (real) leads to its appreciation, and a decrease in demand for a currency (dollar) leads to its depreciation.

Answer:

B. The U.S. dollar is depreciating while the Brazilian real is appreciating.