Question

Interest rates rise faster in Scotland (GBP) than they do in the United States (USD). Which nation’s currency appreciates? Which nation’s currency depreciates? How will the change in the value of the U.S. dollar impact the balance of trade in the United States? How will the change in the value of the British pound impact the balance of trade in Scotland?

Answer 1

There is very simple logic between demand and supply. When demand is high, price rises and currency appreciates in its value. On the other hand, price should decline if import rate is mare compared with export rates. As prices of U.S goods increases which ultimately goes to international market where producers have to pay domestic currencies. Americans will demands comparatively less expensive goods. So it will result in supplying more dollars to foreign exchange market.

Finally, increasing demand of pounds. Finally, U.S dollars appreciates and pound depreciates. Trade value is amount by which total import value deviates from export value. Due to changes in interest rates results in trade imbalance in U.S. There is not greater effect on Scotland as it is key player in transporting of energy products to rest of U.K.