If British interest rates suddenly increase substantially relative to U.S. interest rates, the demand by U.S. investors for British pounds ____, the supply of British pounds to be sold in exchange for dollars ____, and the British pound will ____.

Question

Quizplus · Accepted Answer

When British interest rates increase relative to U.S. rates, U.S. investors are more likely to invest in Britain to take advantage of higher returns, increasing demand for pounds. The supply of pounds decreases as fewer pounds are sold in exchange for dollars, leading to the appreciation of the pound.

If British Interest Rates Suddenly Increase Substantially Relative to U