Other things the same, which of the following would cause the exchange rate to rise?
A)both an increase in the interest rate and an increase in foreign demand for U.S. goods and services.
B)an increase in the interest rate, but not an increase in foreign demand for U.S. goods and services.
C)an increase in foreign demand for U.S. goods and service, but not an increase in the U.S. interest rate.
D)neither an increase in the U.S. interest rate nor an increase in the demand for U.S. goods and services.

Question

Quizplus · Accepted Answer

An increase in the interest rate attracts foreign capital, increasing demand for the currency, while an increase in foreign demand for goods and services also increases demand for the currency, both leading to a rise in the exchange rate.

Other Things the Same, Which of the Following Would Cause