If foreign interest rates are high relative to those in the U.S. demand for dollars will:
A) decrease as investors sell their dollars to buy foreign currency for investment abroad.
B) increase as investors sell their currency to buy dollars for investment.
C) decrease as investors sell their currency to buy dollars for investment.
D) increase as investors sell their dollars to buy foreign currency for investment.

Question

Quizplus · Accepted Answer

If foreign interest rates are high relative to those in the U.S., investors would want to take advantage of the higher return on their investments by selling dollars and buying foreign currency to invest abroad. This increased supply of dollars on the market would lead to a decrease in demand for dollars and a decrease in the value of the dollar.

If Foreign Interest Rates Are High Relative to Those in the U.S