Suppose that the UK withdrawals from the European Union following the referendum

Question

Suppose that the UK withdrawals from the European Union following the referendum later this year and that as a result of rising prices for a broad variety of goods the UK begins to experience a higher rate of inflation that the EU. What would happen to the Pound/Euro exchange rate?

The pound would appreciate in value

Demand for pounds would rise

The supply of euros would increase

The value of the euro would rise relative to the pound

The pound would appreciate in value

Demand for pounds would rise

The supply of euros would increase

The value of the euro would rise relative to the pound

Explanation / Answer

The value of the euro would rise relative to the pound

as higher inflation will reduce pound purchasing and real value, so the pound will depreciated compared to euro and euro rises

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