Suppose the current exchange rate between the euro and the United States dollar is 1.15 euros per dollar. If interest rates in the United States increase and interest rates in Europe remain unchanged then
A) the demand for dollars will increase.
B) the demand for dollars will decrease.
C) the demand for euros will increase.
D) None of the above answers is correct.

Question

Quizplus · Accepted Answer

When interest rates in the United States increase while those in Europe remain unchanged, investors are likely to shift their investments to the U.S. to benefit from the higher returns. This increases the demand for dollars as investors need to convert their currency into dollars to invest in the U.S.

Suppose the Current Exchange Rate Between the Euro and the United