In international exchange markets, a rise in interest rates in Australia, ceteris paribus, will cause the demand for dollars to ________ and the supply of dollars to ________.
A)increase; increase
B)increase; decrease
C)decrease; increase
D)decrease; decrease

Question

Quizplus · Accepted Answer

A rise in interest rates in Australia makes Australian dollar-denominated assets more attractive, increasing the demand for Australian dollars as investors seek higher returns. Conversely, Australians are less incentivized to invest abroad, decreasing the supply of Australian dollars in the foreign exchange market.

In International Exchange Markets, a Rise in Interest Rates in Australia