Suppose that the interest rate in Great Britain increases, while the interest rate in the United States remains constant.As a result,
A) the demand curve for pounds decreases, and the pound depreciates against the dollar.
B) the demand curve for pounds increases, and the pound depreciates against the dollar.
C) the demand curve for pounds increases, and the pound appreciates against the dollar.
D) the demand curve for pounds decreases, and the pound appreciates against the dollar.

Question

Quizplus · Accepted Answer

When the interest rate in Great Britain increases while remaining constant in the United States, investors are likely to find British assets more attractive, leading to an increased demand for pounds to invest in those assets. This increased demand for pounds strengthens the pound's value, causing it to appreciate against the dollar.

Suppose That the Interest Rate in Great Britain Increases, While