If a country experiences a reduction in interest rates relative to U.S. interest rates, and there is no change in inflationary conditions, that country's investors will ____ their investments in U.S. securities, and there is ____ pressure on its currency's equilibrium value.
A) increase; downward
B) decrease; upward
C) increase; upward
D) decrease; downward

Question

​If a country experiences a reduction in interest rates relative to U.S. interest rates, and there is no change in inflationary conditions, that country's investors will ____ their investments in U.S. securities, and there is ____ pressure on its currency's equilibrium value.
A) ​increase; downward
B) ​decrease; upward
C) ​increase; upward
D) ​decrease; downward

Quizplus · Accepted Answer

If a country's interest rates decrease relative to U.S. interest rates, its investors would find U.S. investments more attractive and, therefore, increase their investments in U.S. securities. This would lead to an increase in demand for U.S. dollars and a decrease in demand for the foreign currency, resulting in downward pressure on the foreign currency's equilibrium value.

​If a Country Experiences a Reduction in Interest Rates Relative

If a Country Experiences a Reduction in Interest Rates Relative