Other things remaining the same, if the U.S. interest rate differential increases, the demand curve for U.S. dollars shifts __________and the supply curve of U.S. dollars shifts__________ .
A) rightward; rightward
B) leftward; rightward
C) rightward; leftward
D) leftward; leftward

Question

Quizplus · Accepted Answer

An increase in the U.S. interest rate differential will make holding U.S. dollars more attractive for foreign investors, leading to an increase in the demand for U.S. dollars. Therefore, the demand curve for U.S. dollars will shift rightward. On the other hand, as more investors switch their investments to U.S. Dollars, the supply of dollars in the foreign exchange market will decrease, leading to a leftward shift in the supply curve of U.S. dollars.

Other Things Remaining the Same, If the U