A decrease in the foreign interest rate shifts the expected return schedule for ________ deposits to the ________ and causes the domestic currency to appreciate.

Question

Quizplus · Accepted Answer

When the foreign interest rate decreases, the expected return on foreign deposits decreases which causes a shift in the expected return schedule for foreign deposits to the left. This makes domestic deposits relatively more attractive, increasing the demand for domestic currency and causing it to appreciate. Therefore, the correct choice is D.

A Decrease in the Foreign Interest Rate Shifts the Expected