If a country experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should ____, the outflow of its funds to purchase U.S. securities should ____, and there is ____ pressure on its currency's equilibrium value.
A) increase; decrease; downward
B) decrease; increase; upward
C) increase; decrease; upward
D) decrease; increase; downward
E) increase; increase; upward

Question

If a country experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should ____, the outflow of its funds to purchase U.S. securities should ____, and there is ____ pressure on its currency's equilibrium value.​
A) ​increase; decrease; downward
B) ​decrease; increase; upward
C) ​increase; decrease; upward
D) ​decrease; increase; downward
E) ​increase; increase; upward

Quizplus · Accepted Answer

When a country's interest rates increase relative to the U.S., it becomes more attractive for investors to invest in that country, leading to an increase in the inflow of U.S. funds to purchase its securities. Conversely, its own investors are less incentivized to invest in the U.S., leading to a decrease in the outflow of its funds to the U.S. This increased demand for the country's currency to purchase its securities exerts upward pressure on its currency's equilibrium value.

If a Country Experiences an Increase in Interest Rates Relative