If the interest rate rises in the United States relative to other nations, then in the foreign exchange market the demand for dollars ________ and the supply of dollars ________.

Question

Quizplus · Accepted Answer

If the interest rate rises in the United States relative to other nations, investors will be attracted to invest in the US, leading to an increase in demand for dollars. Additionally, US investors are likely to bring back their money to take advantage of the higher interest rates, leading to a decrease in the supply of dollars. Therefore, the demand for dollars increases while the supply of dollars decreases, resulting in an increase in the exchange rate of the dollar.

If the Interest Rate Rises in the United States Relative