Ceteris paribus, a rise in U.S. interest rates
A)will cause international investors to decrease their demand for dollar-denominated assets.
B)has no effect on international investors.
C)will cause international investors to increase their demand for dollar-denominated assets
D)will have no effect on dollar-denominated assets but will cause an increase in the demand for yen-denominated assets.
E)will have an uncertain effect on dollar-denominated assets.

Question

Quizplus · Accepted Answer

When U.S. interest rates rise, dollar-denominated assets become more attractive to international investors because they can earn a higher return on these investments compared to assets denominated in other currencies. This increased attractiveness leads to a higher demand for dollar-denominated assets.

Ceteris Paribus, a Rise in U.S. Interest Rates