Using demand and supply analysis to assist you, what are the effects on the exchange rate between the British pound and the Japanese yen from: a decrease in Japanese interest rates
The yen depreciates, and the pound appreciates
b. The yen appreciates, and the pound depreciates
c, The yen depreciates, and the pound depreciates
d. The yen appreciates, and the pound appreciates
The correct answer is b. The yen appreciates, and the pound depreciates.
When there is a decrease in Japanese interest rates, it creates a decrease in the demand for Japanese yen. This happens because lower interest rates make it less attractive for foreign investors to hold their money in Japanese banks, resulting in a decrease in capital inflow into Japan.
According to the principles of supply and demand, a decrease in demand for Japanese yen will cause the value of the yen to depreciate. On the other hand, since the demand for British pounds remains constant, the value of the pound will depreciate relative to the yen.
So, when there is a decrease in Japanese interest rates, the exchange rate between the British pound and the Japanese yen will be such that the yen appreciates, and the pound depreciates.
To determine the effects of a decrease in Japanese interest rates on the exchange rate between the British pound (GBP) and the Japanese yen (JPY), we can analyze the situation using demand and supply analysis.
When Japanese interest rates decrease, it affects the demand and supply of the Japanese yen in the foreign exchange market.
1. Decrease in Japanese interest rates:
a. Decreased interest rates in Japan would make Japanese assets, such as bonds and deposits, less attractive to international investors. This would lead to a decrease in foreign demand for Japanese assets, resulting in a decrease in demand for the Japanese yen.
b. As the demand for the yen decreases, the exchange rate between the yen and the pound will be affected. The pound will appreciate against the yen because the relative value of the yen has decreased compared to the pound.
c. Therefore, a decrease in Japanese interest rates would lead to the yen depreciating and the pound appreciating.
In conclusion, the correct answer is:
a. The yen depreciates, and the pound appreciates.