Suppose the exchange rate for the U.S. dollar rises. This could be caused by
A) an increase in U.S. import demand.
B) a decrease in the world demand for U.S. exports.
C) a fall in the expected future exchange rate.
D) an increase in the U.S. interest rate differential.

Question

Quizplus · Accepted Answer

An increase in the U.S. interest rate differential (the difference between U.S. interest rates and those of other countries) makes holding assets denominated in U.S. dollars more attractive. This leads to an increase in demand for the U.S. dollar, causing its exchange rate to rise.

Suppose the Exchange Rate for the U