With everything else the same, in the foreign exchange market which of the following increases the supply of U.S. dollars?
I. a fall in the U.S. interest rate
II. a fall in interest rates in foreign countries
III. a rise in expected future exchange rate
A) I and III only
B) I and II only
C) I only
D) I, II, and III

Question

Quizplus · Accepted Answer

A fall in the U.S. interest rate makes U.S. assets less attractive, leading investors to exchange U.S. dollars for foreign currencies, thus increasing the supply of U.S. dollars in the foreign exchange market.

With Everything Else the Same, in the Foreign Exchange Market