A higher U.S.interest rate (i_$ ↑)relative to interest rates abroad,ceteris paribus,will result in A)a stronger dollar. B)a lower spot exchange rate (expressed as foreign currency per U.S.dollar). C)a stronger dollar and a lower spot exchange rate (expressed as foreign currency per U.S.dollar). D)none of the options

Question

Quizplus · Accepted Answer

An increase in the U.S. interest rate relative to interest rates abroad will attract capital flows into the U.S., leading to a higher demand for U.S. dollars and thus a stronger dollar.

A Higher U