<u>The correct option is (d). A change in the U.S inflation rate would affect the value of the pound and a change in U.S interest rate would affect the value of the yen.
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Further Explanation:
Inflation:
Inflation refers to the increase in the price of goods. The increase in the inflation rate will decrease the value of the currency. The interest rate also affects the value of the currency. The increase in the interest rate would result in the increase in the value of the currency and vice versa.
In this case, Britain and the United States are carrying on a huge number of trade with each other and are having few financial transactions. The trade between two countries would become expensive because the increase in the interest rate would increase the value of the goods.
Japan and the U.S. are carrying on a large number of financial transactions, but few times engage in trade. The change in interest rate will affect the currency as the interest rate increases the value of U.S. currency will rise. The value of the Japanese Yen will fall in comparison with U.S. currency.
Learn more:
1. Learn more about the buying power
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2. Learn more about the inflation
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3. Learn more about the effect of inflation
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Answer details:
Grade: High School
Subject: Economics
Chapter: International Trade
Keywords: Britain, the U.S., international trade, financial flows, japan, financial flow transactions, trade flows, the value of the pound, the value of the yen, interest rate, income level interest rate.