The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the questions that follow.
-If interest rates in Mexico rise relative to interest rates in the United States,the demand curve in the figure above:
A) will not shift because interests rates are not related to exchange rates.
B) will not shift because interests rates only affect the supply curve.
C) can either increase from D₁ to D₂ or decrease from D₁ to D₃, depending on the relative magnitude of the two effects.
D) will increase from D₁ to D₂.
E) will decrease from D₁ to D₃.
Correct Answer:
Verified
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