If the Federal Reserve increases interest rates,
A) the demand curve for U.S. dollars shifts rightward and the supply curve of U.S. dollars shifts leftward.
B) only the demand curve for U.S. dollars shifts rightward.
C) the demand curve for U.S. dollars shifts leftward and the supply curve of U.S. dollars shifts rightward.
D) the demand curve for U.S. dollars and the demand curve for European euros both shift rightward.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases interest rates, U.S. assets become more attractive to investors, increasing the demand for U.S. dollars (shifting the demand curve rightward) and reducing the supply of U.S. dollars as fewer dollars are sold for foreign currencies (shifting the supply curve leftward).

If the Federal Reserve Increases Interest Rates