Two quick things that I can’t quite make right in my head, if anybody knows this stuff, please help me understand it better.
1) An increase in US income, according to my teacher and textbook, leads to a depreciation of the dollar because the supply of dollars rises. However, wouldn’t more people buy the dollar is America was doing good, pushing it up? I remember when the whole “European contagion” thing was in the news last year, the Euro kept plummeting, which is the opposite of what this suggests.
2) According to my teacher and textbooks, if a country has high interest rates, people will want to put their money in that country. To me, that makes no sense because high interest rates generally signal either higher interest rates coming due to inflation, or an unstable economy. On top of that, it will be harder for companies to do business in that country because the cost of capital is so much higher. According to my teacher and textbook, if this high interest rate thing happened in foreign countries, it would make the US markets fall and foreign ones rise. Using empirical evidence, high inflation abroad has crushed emerging market ETF’s and boosted the US stock market.
It appears my empirical evidence contradicts my teachings...please help