If U.S.interest rates suddenly become much higher than European interest rates, the U.S.demand for euros would ____, and the supply of euros to be exchanged for dollars would ____, other factors held constant.

Question

Quizplus · Accepted Answer

If the U.S. interest rates become much higher than European interest rates, investors would demand U.S. dollars instead of euros because they can earn higher returns with the dollars. This would lead to a decreased demand for euros and an increased supply of euros to be exchanged for dollars. Therefore, the correct choice is (C) decrease; increase.

If USInterest Rates Suddenly Become Much Higher Than European Interest Rates