An increase in the U.S.interest rate
A) reduces the opportunity cost of holding dollars.
B) induces households to increase consumption.
C) shifts money demand to the right.
D) leads to an appreciation of the U.S.dollar.

Question

Quizplus · Accepted Answer

When interest rates in the U.S. increase, foreign investors will find that they can earn higher returns by investing in U.S. assets. This in turn increases the demand for U.S. dollars, leading to an appreciation of the currency.

An Increase in the U.S.interest Rate