Interest rates in Australia rise relative to interest rates in other countries. As a result, in the foreign exchange market
A)there is an upward movement along the supply curve of Australian dollars.
B)the demand curve for Australian dollars shifts leftward.
C)the supply curve of Australian dollars shifts rightward.
D)the supply curve of Australian dollars shifts leftward.

Question

Quizplus · Accepted Answer

When interest rates in Australia rise relative to other countries, foreign investors are attracted to the higher returns, increasing demand for Australian dollars. Consequently, Australians are less inclined to invest abroad, reducing the supply of Australian dollars in the foreign exchange market, causing a leftward shift in the supply curve.

Interest Rates in Australia Rise Relative to Interest Rates in Other