The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the following questions.
-If interest rates in the United States rise relative to interest rates in Mexico and,at the same time,Mexican consumer demand for U.S.goods decreases,the demand curve in the figure above

Question

The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the following questions. 
-If interest rates in the United States rise relative to interest rates in Mexico and,at the same time,Mexican consumer demand for U.S.goods decreases,the demand curve in the figure above

Quizplus · Accepted Answer

A rise in U.S. interest rates relative to Mexico would lead to an increase in demand for U.S. dollars because investors seeking higher returns would want to invest in the United States. However, a decrease in Mexican consumer demand for U.S. goods would lead to a decrease in demand for U.S. dollars because there would be fewer transactions requiring the use of U.S. dollars. The two effects would influence demand in opposite directions, so the direction of the shift in the demand curve cannot be determined without more information on the relative magnitude of the two effects. Therefore, the correct answer is C.

The Following Figure Depicts the Demand for U