What does an increase in the interest rate cause?
A) It causes investment to rise and the exchange rate to appreciate.
B) It causes investment to fall and the exchange rate to depreciate.
C) It causes investment to rise and the exchange rate to depreciate.
D) It causes investment to fall and the exchange rate to appreciate.

Question

Quizplus · Accepted Answer

An increase in the interest rate typically leads to a decrease in investment because borrowing costs become higher. Additionally, higher interest rates make a country's currency more attractive to foreign investors, leading to an appreciation of the exchange rate.

What Does an Increase in the Interest Rate Cause