Through the summer and fall of 2008, as the global financial crisis began to take hold, international financial institutions and sovereign wealth funds significantly increased their purchases of U.S. Treasury securities as a safe haven investment. How should this affect U.S. dollar exchangerates?

A. The dollar should appreciate relative to other currencies because of an increase in demand for U.S. Dollar-denominated assets

B. the dollar should depreciate as foreign countries are likely to raise interest rates to compete with the purchases of U.S. Treasuries.

C. the dollar should depreciate as increased purchases of U.S. Treasuries will lead to lower interest rates and a lower expected return on dollar assets.

D. the dollar will remain unchanged, as there is no direct relationship between U.S. Treasury securities and the U.S. dollar exchange rate.

Answer rating: 100% (QA)

A The dollar should appreciate relative to other currenc... View the full answer