The increase in interest rates as a result of the government of Russia running a

Question

The increase in interest rates as a result of the government of Russia running a budget deficit wil A. cause an increase in the value of the ruble relative to other currencies and therefore decrease imports and decrease exports O B. cause a decrease in the value of the ruble relative to other currencies and therefore increase imports and decrease exports O c. cause an increase in the value of the ruble relative to other currencies and therefore increase imports and decrease exports 0 D. cause an increase in the value of the ruble relative to other currencies and therefore increase imports and increase exports Click to select your answer

Explanation / Answer

Increase in interest rate will attract foreign investors to invest more in Russia as they will get high return on their investment. So, there will be an increase in demand for Russian Ruble. This will cause value of ruble to increase relative to other currencies. Increase in value of ruble causes Russian exports to be relatively less attractive to foreigners(as it becomes costlier) and import into Russia will be relatively less expensive. As a result, export will decrease and import will increase.

Answer- option 3

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