If a nation's central bank increased domestic interest rates, the nation's exchange rate would change if the country's exchange rate was

Question

Quizplus · Accepted Answer

If a nation's central bank increases domestic interest rates, it provides an incentive for foreign investors to invest in that country, which increases demand for that country's currency on foreign exchange markets. This increased demand for the currency causes its value to appreciate, resulting in a change in the exchange rate. This applies only to countries with flexible exchange rates as they are determined by supply and demand on foreign currency exchanges.

If a Nation's Central Bank Increased Domestic Interest Rates, the Nation's