If the U.S. interest rate rises while interest rates in the rest of the world do not change, the higher U.S. interest rate
A) decreases the demand for dollars.
B) increases the demand for dollars.
C) has no effect on the demand for dollars.
D) will stop all trading between the currencies of the U.S. and other countries.

Question

Quizplus · Accepted Answer

When the U.S. interest rate rises relative to interest rates in other countries, it makes dollar-denominated assets more attractive to investors, increasing the demand for dollars as investors exchange their own currencies for dollars to invest in these higher-yielding assets.

If the US Interest Rate Rises While Interest Rates in the Rest