<p>Increase in business optimism means that demand for loanable funds in Ghana will increase. Real interest rate in Ghana rises, meaning foreigners will want to purchase assets in Ghana because of the higher return rate. Thus, the rupee depreciates and the cedi appreciates.</p>

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2022-12-02T15:40:20.633Z
2022-12-02T15:40:20.633Z
Kiwi
<p><a href="https://i.sstatic.net/qXLxG.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/qXLxG.png" alt="enter image description here" /></a></p>
<p>Text from the image:</p>
<p>One of Ghana’s top trading partners is India. The currency in Ghana is the cedi and the currency in India is the rupee.</p>
<p>Which of the following is a likely consequence of an increase in business optimism in Ghana?</p>
<p>(A) a depreciation of the cedi against the rupee.</p>
<p>(B) a depreciation of the rupee against the cedi.</p>
<p>Here is what I thought.</p>
<p><strong>High</strong> Business Optimism in Ghana -&gt; <strong>More</strong> Investment in Ghana -&gt; <strong>High</strong> A.D. -&gt; Price Level <strong>High</strong> -&gt; <strong>More</strong> expensive for Indians to buy Ghanian stuff -&gt; Demand for Cedi will go <strong>down</strong> -&gt; Cedi <strong>Depreciates</strong>.</p>
<p>Why is this incorrect?</p>
<p>Thanks</p>

<macroeconomics><international-trade><foreign-exchange>
Will business optimism in Ghana appreciate / depreciates Ghana's currency?
MangoPizza
# Will business optimism in Ghana appreciate / depreciates Ghana's currency?

(Asked by: username_0 on 2022-04-16)

[![enter image description here](https://i.sstatic.net/qXLxG.png)](https://i.sstatic.net/qXLxG.png)

Text from the image:

One of Ghana’s top trading partners is India. The currency in Ghana is the cedi and the currency in India is the rupee.

Which of the following is a likely consequence of an increase in business optimism in Ghana?

(A) a depreciation of the cedi against the rupee.

(B) a depreciation of the rupee against the cedi.

Here is what I thought.

**High** Business Optimism in Ghana -> **More** Investment in Ghana -> **High** A.D. -> Price Level **High** -> **More** expensive for Indians to buy Ghanian stuff -> Demand for Cedi will go **down** -> Cedi **Depreciates**.

Why is this incorrect?

Thanks

**Tags:** macroeconomics, international-trade, foreign-exchange

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## 1 answers

### Answer by username_1 on 2022-12-02. Score: 1

Increase in business optimism means that demand for loanable funds in Ghana will increase. Real interest rate in Ghana rises, meaning foreigners will want to purchase assets in Ghana because of the higher return rate. Thus, the rupee depreciates and the cedi appreciates.


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