Use the information below to answer the following questions.
Fact 25.3.1 Aussie Dollar Hit by Interest Rate Talk
The Australian dollar fell against the U.S. dollar to its lowest value in the past two weeks. The CPI inflation rate was reported to be generally as expected but not high enough to justify previous expectations for an aggressive interest rate rise by Australia's central bank next week.
Source: Reuters, October 28, 2009
-Consider Fact 25.3.1. Australia's exchange rate policy is a flexible exchange rate. An expected rise in the Australian interest rate with no change in the Canadian interest rate, everything else remaining the same, ________ the demand for Australian dollars and ________ the supply of Australian dollars.
A)increases; increases
B)increases; decreases
C)decreases; decreases
D)decreases; increases
E)does not change; does not change

Question

Quizplus · Accepted Answer

An expected rise in the Australian interest rate would make Australian assets more attractive, increasing the demand for Australian dollars and decreasing the supply as investors seek to hold more Australian currency.

Use the Information Below to Answer the Following Questions