An increase in U.S. interest rates relative to German interest rates would likely ____ the U.S. demand for euros and ____ the supply of euros for sale.
A) reduce; increase
B) increase; reduce
C) reduce; reduce
D) increase; increase

Question

An increase in U.S. interest rates relative to German interest rates would likely ____ the U.S. demand for euros and ____ the supply of euros for sale.​
A) ​reduce; increase
B) ​increase; reduce
C) ​reduce; reduce
D) ​increase; increase

Quizplus · Accepted Answer

When U.S. interest rates increase relative to German interest rates, it becomes more attractive for investors to hold U.S. dollars instead of euros. As a result, the demand for euros will decrease, causing the value of the euro to fall. Additionally, there will be a reduced supply of euros for sale as investors will be less willing to sell euros for dollars.

An Increase in U