Which of the following, ceteris paribus, will cause the dollar to depreciate?
A)an increase in U.S. interest rates
B)an increase in foreign interest rates
C)a rise in the exchange rate
D)All of the above are correct.

Question

Quizplus · Accepted Answer

An increase in foreign interest rates, ceteris paribus, will cause the dollar to depreciate as investors will seek higher returns in the foreign country, leading to a decreased demand for dollars and an increased demand for the foreign currency. An increase in U.S. interest rates and a rise in the exchange rate, on the other hand, will cause the dollar to appreciate.

Which of the Following, Ceteris Paribus, Will Cause the Dollar