Assume a system of floating exchange rates.In response to relatively high domestic interest rates,suppose that foreign investors place their funds in domestic capital markets.The result would be
A) a depreciation of the domestic currency and a rise in net exports
B) a depreciation of the domestic currency and a fall in net exports
C) an appreciation of the domestic currency and a rise in net exports
D) an appreciation of the domestic currency and a fall in net exports

Question

Quizplus · Accepted Answer

High domestic interest rates attract foreign investors, increasing demand for the domestic currency, leading to its appreciation. An appreciated currency makes exports more expensive, reducing net exports.

Assume a System of Floating Exchange Rates