Which of the following will NOT change the exchange rate?

Question

Quizplus · Accepted Answer

Domestic demand for domestic products does not directly affect the exchange rate because it is focused on the demand for goods within a country, rather than the exchange of currency between countries. The other options all have an impact on the supply and demand for currency, which affects the exchange rate. A change in preferences for foreign goods would increase demand for foreign currency and decrease demand for domestic currency, leading to a depreciation of the domestic currency. U.S. income growth relative to foreign countries would increase demand for U.S. goods and therefore the demand for U.S. dollars, leading to an appreciation of the dollar. Finally, U.S. interest rates relative to foreign interest rates impact the return on investment for holding U.S. dollars versus foreign currency, leading to shifts in demand for the different currencies and changes in the exchange rate.

Which of the Following Will NOT Change the Exchange Rate