16 Exchange Rate Movements Are the following statements true or false? Explain why.

(a) If the central bank decreases interest rates in the United Kingdom, but holds them constant in the United States, then we would expect the pound to depreciate relative to the dollar.

(b) Suppose you are a German machine tool exporter and you invoice all of your sales in foreign currency.

Further suppose that there are higher inflation rates in Germany relative to those in other countries, then you should use the forward markets to protect yourself against future losses resulting from the deterioration in the value of the euro.

(c) The 2016 Brexit vote was widely anticipated to result in a vote to remain in the EU. Instead, the public voted to leave. Against this backdrop, we should expect the pound to depreciate relative to the euro.