What is likely to happen to the PLN/USD exchange rate when the Polish central bank increases its base rate?
Understand the Problem
The question is asking about the potential impact on the PLN/USD exchange rate following an increase in the Polish central bank's base rate. It implicitly relates interest rates to currency valuation and the attractiveness of assets, requiring an understanding of economic principles and exchange rate dynamics.
Answer
When the Polish central bank increases its base rate, PLN/USD is likely to appreciate.
The final answer is: When the Polish central bank increases its base rate, the PLN/USD exchange rate is likely to appreciate, meaning the Polish Zloty (PLN) would strengthen against the US Dollar (USD).
Answer for screen readers
The final answer is: When the Polish central bank increases its base rate, the PLN/USD exchange rate is likely to appreciate, meaning the Polish Zloty (PLN) would strengthen against the US Dollar (USD).
More Information
An increase in the central bank's base rate generally makes the currency more attractive to investors seeking higher yields, leading to an appreciation of that currency.
Tips
A common mistake is assuming that the increase will have an immediate effect. However, market reactions can vary based on other economic conditions and investor expectations.
Sources
- Factors That Influence Exchange Rates - Investopedia - investopedia.com
- Exchange rates and interest rates - Statistics Explained - ec.europa.eu
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