Assume there is an international crisis What would you expec

Assume there is an international crisis. What would you expect to happen the value of the dollar versus other currencies and what would happen to the yields on 10-year treasury bonds and Federal Fund rate?

Solution

In case of international crisis, people tend to flock to safe haven and safe currencies. Dollar is considered the safest currency . As demand for dollars would go up, value of dollar would go up. So, Dollar would appreciate relative to other currencies.

Also, people-both foreign and domestic investors would start purchasing US bonds, US yields would go down as prices would go up.

Federal Fund Rate would also go down.