Question

Assume the United States and European governments adopt a system of flexible exchange rates. If currency traders think the European economy will experience a recession and the U.S. economy will not, this will most likely cause _____.

Answer 1

Answer:

Euro would depreciate in value against the U.S. Dollar.

Explanation:

It can be said that if the European economy experiences a recession but not the U.S. then the most likely scenario would be that the Euro would depreciate in value against the U.S. Dollar. This means that the price of the Euro would decrease and a U.S. Dollar will be able to be exchanged for a greater quantity of European Euros.