Which of the following statements is true?
A)If the domestic interest rate rises, there will be international financial repositioning toward domestic-currency assets, thereby causing the domestic currency to appreciate.
B)If the expected future spot exchange rate value of the foreign currency decreases, there will be international financial repositioning toward foreign-currency assets, thereby causing the domestic currency to depreciate.
C)If foreign interest rates increase, the domestic interest rate remaining unchanged, there will be international financial repositioning toward domestic-currency assets and the domestic currency will appreciate.
D)If the expected future spot dollar per euro exchange rate increases, there will be international financial repositioning toward the dollar-denominated assets thereby causing the euro to depreciate.

Question

Quizplus · Accepted Answer

When the domestic interest rate rises, it makes domestic-currency assets more attractive to investors, leading to an inflow of capital. This increased demand for the domestic currency to purchase these assets causes the currency to appreciate.

Which of the Following Statements Is True