An increase in the foreign interest rate causes the demand for domestic assets to ________ and the domestic currency to ________,everything else held constant.

Question

Quizplus · Accepted Answer

An increase in foreign interest rates makes foreign assets more attractive compared to domestic assets, leading to a decrease in demand for domestic assets. As investors sell domestic currency to buy foreign assets, the domestic currency depreciates.

An Increase in the Foreign Interest Rate Causes the Demand