Question

Trading in the Interbank market will DIRECTLY affect: I American Depositary Receipt prices in terms of U.S. dollars II Foreign Currency prices in terms of U.S. dollars III Future trade deficit or surplus figures IV Future economic growth

Answer 1

Trading in the Interbank market will directly affect the prices of foreign currencies and potentially the ADRs in U.S. dollars, future trade deficit or surplus figures, and indirectly, the future economic growth. Higher U.S. interest rates can appreciate the dollar, influence trade balances, and alter the attractiveness of U.S. bonds to both domestic and foreign investors.

Step-by-step explanation:

Trading in the Interbank market will directly affect several aspects of the economy. Notably, it will impact:

1. Foreign Currency prices in terms of U.S. dollars.
2. Potentially, the prices of American Depositary Receipts (ADRs) in terms of U.S. dollars, if the ADRs are for a foreign company and its home currency is affected by the Interbank market activities.
3. Future trade deficit or surplus figures, as variations in currency valuations can influence exports and imports.
4. Indirectly, it may also affect future economic growth due to its potential impact on trade balances and the cost of capital.

For instance, if the U.S. interest rates are higher than those abroad, it could lead to an appreciation of the U.S. dollar. As investors seek the higher yields available in the U.S., there is an increased demand for the dollar, causing its value to rise. Conversely, Americans might find domestic bonds more attractive, leading to a decrease in U.S. dollars supplied overseas. These changes in currency valuations due to foreign investment inflows and outflows can lead to shifts in the trade balance, affecting the nation's trade deficit or surplus. While there is a definite connection between budget deficits, foreign capital inflows, interest rates, and trade balances, the relationship is complex and not always one-to-one.