If the Fed is using policy to combat inflation,what is likely to happen in the foreign exchange market and to the foreign exchange value of the dollar?
A)The demand for the dollar will increase and the foreign exchange value of the dollar will rise.
B)The demand for the dollar will decrease and the foreign exchange value of the dollar will rise.
C)The demand for the dollar will increase and the foreign exchange value of the dollar will fall.
D)The demand for the dollar will decrease and the foreign exchange value of the dollar will fall.

Question

Quizplus · Accepted Answer

When the Federal Reserve combats inflation, it typically does so by raising interest rates. Higher interest rates make dollar-denominated financial assets more attractive, leading to an increase in demand for the dollar. As demand for the dollar increases, its value in the foreign exchange market also rises.

If the Fed Is Using Policy to Combat Inflation,what Is