If the Federal Reserve raises the U.S. interest rate, foreigners'
A) demand for U.S. dollars will increase and the exchange rate will rise.
B) demand for U.S. dollars will decrease and the exchange rate will fall.
C) demand for U.S. dollars will increase and the exchange rate will fall.
D) demand for U.S. dollars will decrease and the exchange rate will rise.

Question

Quizplus · Accepted Answer

When the Federal Reserve raises U.S. interest rates, investments in the U.S. become more attractive, leading to an increased demand for U.S. dollars. This higher demand strengthens the dollar, causing the exchange rate to rise.

If the Federal Reserve Raises the U