If interest rates in the European Union decrease
A) the demand for U.S. dollars will fall in the foreign exchange market.
B) the supply of U.S. dollars will fall in the foreign exchange market.
C) the demand for euros will fall in the foreign exchange market.
D) nothing will change in the foreign exchange market.

Question

Quizplus · Accepted Answer

If interest rates in the European Union decrease, it would make the euro less attractive to investors and decrease the demand for euros in the foreign exchange market. This would lead to a decrease in the exchange rate between the euro and other currencies, including the U.S. dollar. Therefore, the demand for U.S. dollars will not fall, and the supply of U.S. dollars will not fall either. Hence, option C is the correct answer.

If Interest Rates in the European Union Decrease