Question

A reduction in interest rates in the economy may result in ________.

• A. Decrease in investment
• B. Currency depreciation
• C. Decrease in money demand
• D. None of the above

Answer 1

The correct option is B Currency depreciation

Lower interest rates tend to be unattractive for foreign investment and decrease the currency's relative value. This will lead to currency depreciation. If a country can achieve a successful balance of increased interest rates without an accompanying increase in inflation, its currency's value and exchange rate is more likely to rise.