Final answer:
The correct option is a. british pound would appreciate.
The British pound would appreciate if demand for it increases relative to the U.S. dollar. Depreciation expectations lead to an increased supply and reduced demand for a currency, thus lowering its value. Interest rate changes can also affect currency demand and supply, influencing exchange rates.
Step-by-step explanation:
If the demand for the British pound increases relative to the U.S. dollar, the correct answer is that the British pound would appreciate. This increase in demand means that more people are looking to acquire British pounds, which increases its value relative to other currencies. As a result, each pound can be exchanged for more dollars, indicating an appreciation of the pound.
Conversely, when there is an expected depreciation in a currency, people tend to sell off the currency, increasing the supply and decreasing the demand leading to a decrease in the currency's value. For instance, if there is political unrest in a country, it may lead to anticipated depreciation, increasing supply and decreasing demand, thereby devaluating the currency compared to stable currencies like the U.S. dollar.
In the case of decreasing interest rates in the U.S., one would expect to see a decrease in demand for dollars and an increase in the dollars' supply in foreign currency markets, leading to a depreciation of the dollar when compared to currencies such as the euro.