The demand for dollars in the foreign exchange market will decrease and the demand curve will shift leftward if
A) the exchange rate for the dollar rises.
B) the expected future exchange rate rises.
C) the U.S. interest rate differential decreases.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

A decrease in the U.S. interest rate differential would decrease the return on holding dollar-denominated assets, making them less attractive to foreign investors and reducing the demand for dollars in the foreign exchange market.

The Demand for Dollars in the Foreign Exchange Market Will