In 2004 economists were concerned that if foreign investors suddenly moved away from U.S.dollar denominated investments then
A)stock prices and interest rates would rise.
B)stock prices and interest rates would fall.
C)stocks prices would rise and interest rates would fall.
D)stocks prices would fall and interest rates would rise.

Question

Quizplus · Accepted Answer

If foreign investors suddenly moved away from U.S. dollar-denominated investments, there would be a decrease in demand for U.S. assets. This would cause a decrease in stock prices and an increase in interest rates as investors demand higher returns for the perceived higher risk associated with holding U.S. assets. Therefore, the best choice is D, as it represents a decrease in stock prices and an increase in interest rates.

In 2004 Economists Were Concerned That If Foreign Investors Suddenly