If interest rates in Australia rise, ceteris paribus, the value of the Australian dollar will:
A)rise as foreign investors increase their holdings of Australian investments.
B)rise as foreign investors decrease their holdings of Australian investments.
C)fall as foreign investors increase their holdings of Australian investments.
D)fall as foreign investors decrease their holdings of Australian investments.

Question

Quizplus · Accepted Answer

When interest rates in Australia rise, ceteris paribus, it becomes more attractive for foreign investors to hold investments in Australia due to the higher returns. This increased demand for Australian investments requires buying Australian dollars, thus increasing the value of the Australian dollar.

If Interest Rates in Australia Rise, Ceteris Paribus, the Value