rise in the domestic interest rate will

Question

Quizplus · Accepted Answer

A rise in the domestic interest rate will increase the value of the domestic currency, making it more expensive to buy foreign currency. As a result, the value of foreign currency put options will increase because they give the right to sell the foreign currency at a fixed exchange rate. Conversely, the value of foreign currency call options will decrease because they give the right to buy the foreign currency at a fixed exchange rate, which is now more expensive.

Rise in the Domestic Interest Rate Will