If the Fed raises the U.S. interest rate, the demand for dollars ________ and the exchange rate ________.
A) increases; rises
B) increases; falls
C) decreases; rises
D) decreases; falls

Question

Quizplus · Accepted Answer

When the Fed raises the U.S. interest rate, it makes holding dollars more attractive because of higher returns on investments denominated in dollars. This increases the demand for dollars, and as demand increases, the exchange rate (the value of the dollar compared to other currencies) also rises.

If the Fed Raises the U