In October 1979, the U. S. central bank (the Federal Reserve System) announced it would play a less active role in limiting fluctuations in dollar interest rates. What do you expect will be the effect of this new policy on the volatility of the dollar's exchange rates against foreign currencies?

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Jordon Cordova

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1 December, 09:37

In October 1979, the U. S. central bank (the Federal Reserve System) announced it would play a less active role in limiting fluctuations in dollar interest rates. What do you expect will be the effect of this new policy on the volatility of the dollar's exchange rates against foreign currencies?

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Ernesto Pitts · Answer 1

Actually the dollar exchange rates would be more volatile against foreign currencies.

Explanation:

The reason or the relationship of these two effects is due to the higher fluctuation in the dollar interest frequency. Dollar price varies according to dollar interest rates, and the increase occurs directly proportional to the rise in the value of the interest rate and it also decreases in a directly proportional way.