[Related to the Apply the Concept: “What Explains Movements in the Dollar Exchange Rate?”]
In March 2020, as the Covid-19 pandemic began to have a significant effect on the global economy, an article in the Wall Street Journal discussed what was happening with the British pound. The article stated that: “The pound is being caught up more generally in a flight to dollars that is affecting all of the globe’s major currencies.”What does the article mean by a “flight to dollars”, and how is it occurring?
A.Foreign governments become concerned about the stability of their currency and decide to buy dollars in the foreign exchange market to back the domestic currency.
B.Foreign investors are attracted to the stability of the U.S. dollar and decide to invest in dollar denominated assets such as U.S. Treasury bonds.
C.Foreign investors are attracted to the stability of the U.S. dollar and decide to buy U.S. dollars in the foreign exchange market.
D.Foreign investors no longer see the dollar as a stable currency and attempt to sell off their dollar denominated assets.
