If the central bank of a country  raises interest rates sharply, the coutry's currency will most likely

a. Increase in relative value

b. Remain unchanged in value

c. Decrease in relative value

d. Decrease sharply in value first and then return to its initial value

what's the answer and y??

I think option A is correct.... because

Interest rate increases, tends to decrease in borrowing, tends to decrease in spending and decease in spending tends to decrease in AD and GDP. When GDP is decrease, it means local currency is getting stronger. Becuase strong curruncy will tends to decease in exports because it is expensive for outsiders, which means low AD & GDP.

This is my understanding.... please correct me if I am wrong.

It could also be D, because in the long term, the low demand would lead to the decrease in value. This question should have had something about whether it's long-term or short-term.

Could be but I am still with option A...

mapaksw1107, What is the answer?