Suppose the exchange rate for the U.S. dollar rises. This could be caused by
A) a fall in the expected future exchange rate.
B) an increase in the U.S. interest rate differential.
C) a decrease in the world demand for U.S. exports.
D) an increase in U.S. import demand.

Question

Quizplus · Accepted Answer

An increase in the U.S. interest rate differential can attract foreign investment and increase demand for U.S. dollars, which in turn raises the exchange rate of the dollar relative to other currencies. The other options provided do not necessarily suggest a rise in the exchange rate of the dollar. A fall in the expected future exchange rate could result in a decrease in the exchange rate of the dollar. A decrease in the world demand for U.S. exports could lead to a decrease in demand for U.S. dollars and therefore lower the exchange rate of the dollar. An increase in U.S. import demand indicates an increase in demand for foreign currencies, which would decrease the exchange rate of the dollar.

Suppose the Exchange Rate for the U