If the Federal Reserve decreases interest rates in the United States relative to interest rates in other countries, then in the foreign exchange market
A) the demand for dollars increases, and the supply of dollars increases.
B) the demand for dollars increases, and the supply of dollars decreases.
C) the demand for dollars decreases, and the supply of dollars increases.
D) the demand for dollars decreases, and the supply of dollars decreases.

Question

Quizplus · Accepted Answer

When the Federal Reserve decreases interest rates relative to interest rates in other countries, it becomes less attractive for foreign investors to hold their money in the U.S. As a result, they will sell their dollars, causing the demand for dollars to decrease. At the same time, the supply of dollars will increase as foreign investors seek to exchange their U.S. dollars for other currencies with higher interest rates. Therefore, the correct choice is C.

If the Federal Reserve Decreases Interest Rates in the United