16.3 It is important to keep in mind which currency is being used to measure the price of others. Graphs can be viewed as showing either an appreciation or a depreciation, depending on which currency is being considered.
In the figure, an increase in demand for U.S. dollars leads to its appreciation from 0.60 pounds per dollar to 0.75 pounds per dollar.
In the figure, an increase in demand for U.S. dollars leads to its appreciation from 0.60 pounds per dollar to 0.75 pounds per dollar.
Patrick Batchelder/Alamy
Interest rates and exchange rate expectations affect the capital account. An interest rate rise in one country will cause capital to flow into it from the other country.