The demand for dollars in the foreign exchange market will decrease and hence the demand curve for dollars will shift leftward if
A) the U.S. interest rate differential decreases.
B) the expected future exchange rate rises.
C) the exchange rate for the dollar rises.
D) the U.S. interest rate differential increases.

Question

Quizplus · Accepted Answer

When the U.S. interest rate differential decreases, it means U.S. interest rates become less attractive compared to foreign interest rates. This leads to a decrease in demand for dollars as investors seek higher returns in other currencies, causing the demand curve for dollars to shift leftward.

The Demand for Dollars in the Foreign Exchange Market Will