Investors from Germany, the United States, and the U.K. frequently invest in each other based on prevailing interest rates. If British interest rates increase, German investors are likely to buy ____ dollar-denominated securities, and the euro is likely to ____ relative to the dollar.

Question

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If British interest rates increase, German investors are likely to buy fewer dollar-denominated securities because the higher interest rates in the U.K. attract investments there instead. This decrease in demand for dollars causes the euro to depreciate relative to the dollar.