When the Fed sells bonds in the open market, we can expect the
A) exchange rate to rise and interest rates to fall.
B) exchange rate and interest rates to rise.
C) exchange rate to fall and interest rates to rise.
D) exchange rate and interest rates to fall.

Question

Quizplus · Accepted Answer

When the Fed sells bonds, it decreases the money supply, leading to higher interest rates. Higher interest rates attract foreign capital, increasing demand for the domestic currency and causing the exchange rate to rise.

When the Fed Sells Bonds in the Open Market, We