When the U.S. interest rate rises relative to that in other counties, in the foreign exchange market the demand for U.S. dollars__________and the supply of U.S. dollars__________ .
A) decreases; decreases
B) decreases; increases
C) increases; increases
D) increases; decreases

Question

Quizplus · Accepted Answer

When the U.S. interest rate rises relative to that in other countries, it makes investments in the U.S. more attractive, leading to an increase in demand for the U.S. dollar. At the same time, investors may choose to sell off their assets in other countries and use the proceeds to invest in the U.S. This leads to a decrease in the supply of U.S. dollars in the foreign exchange market. Therefore, the correct answer is choice D, which states that the demand for U.S. dollars increases and the supply of U.S. dollars decreases.