If the Australian interest rate differential increases, in the foreign exchange market the demand for Australian dollars ________ and the supply of Australian dollars ________.

Question

Quizplus · Accepted Answer

When the Australian interest rate differential increases, it makes Australian assets more attractive to foreign investors, leading to an increase in demand for Australian dollars to purchase these assets. Simultaneously, the supply of Australian dollars decreases as fewer Australians seek to invest abroad due to relatively lower returns.

If the Australian Interest Rate Differential Increases, in the Foreign