Question

Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the EUR/USD exchange rate. Given this change in exchange rate, how would firms and customers be affected?

References to verify answer

Answer 1

A carry trade is basically that type of trading strategy which involves the borrowings at a very low rate of interest and the same invested in a particular asset which provides or gives a higher rate of return on the investment.
A decrease in US interest rates affected the euro and USD exchange rate because when interest rate decreases then it means it is a good opportunity to raise the borrowings so the investment part also shows a positive impact when there is a downfall in the interest rate for the currency which exchange with Euro will also get the benefit to invest and to raise the portfolio.
With increasing the exchange rate of change in the exchange rate in a positive sense or negative sense it will directly impact the customers because the customer's borrowing and investment are based on the interest rate customer also take to decide what to purchase and what to exchange because it is all about the matter of the capital which is customer want to you expect from the investment, therefore, the role of investor in the economy is important as the investment depends on the rate of interest generally when the rate of interest is low then the investment aise high and it will give good return to the customers.
The European Central Bank shows the references to the exchange rate effect on the customer.
The exchange rate is the rate where the currency of one country is Exchange with the currency of another country. Basically it works on the value of the currencies therefore as per the report of the European Central Bank the exchange between Europe and USD affected the investment criteria in the country.