The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the next questions:
-If interest rates in the United States rise relative to interest rates in Mexico and, at the same time, Mexican consumer demand for U.S. goods decreases, the demand curve in the figure above:

Question

The following figure depicts the demand for U.S. dollars in the foreign currency exchange market. Use this figure to answer the next  questions: 
-If interest rates in the United States rise relative to interest rates in Mexico and, at the same time, Mexican consumer demand for U.S. goods decreases, the demand curve in the figure above:

Quizplus · Accepted Answer

The increase in U.S. interest rates relative to Mexican interest rates will cause an increase in the demand for U.S. dollars due to higher returns on U.S. dollar-denominated assets. However, the decrease in Mexican consumer demand for U.S. goods will decrease the demand for U.S. dollars, as fewer dollars will be needed to purchase Mexican goods. The net effect on the demand curve depends on the relative magnitude of these two effects, so it can either increase or decrease. Thus, choice C is the correct answer.

The Following Figure Depicts the Demand for U