If the Fed raises the interest rate, in the foreign exchange market the demand for the U.S. dollar increases.

Question

Quizplus · Accepted Answer

When the Federal Reserve raises interest rates, it typically leads to an increase in the value of the U.S. dollar relative to other currencies. Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise. The demand for the U.S. dollar increases because investors and traders seek to benefit from the higher yields available in the U.S.

If the Fed Raises the Interest Rate, in the Foreign