S. interest rates suddenly become much higher than European interest rates (and if this does not cause concern about higher inflation in the United States), the U.S. demand for euros would____, and the supply of euros to be exchanged for dollars would ____, other factors held constant.

Question

Quizplus · Accepted Answer

If U.S. interest rates become much higher than European interest rates, U.S. investors will invest more in U.S. assets instead of European assets. This means that demand for euros will decrease and the supply of euros to be exchanged for dollars will increase, leading to a decrease in the value of the euro relative to the dollar.

S Interest Rates Suddenly Become Much Higher Than European Interest