If the Fed hikes the U.S.interest rate relative to interest rates in other countries,in the foreign exchange market the demand for dollars will ________,the supply of dollars will ________,and the exchange rate will ________.
A) increase; increase; rise
B) decrease; decrease; fall
C) increase; decrease; rise
D) decrease; increase; fall

Question

Quizplus · Accepted Answer

If the Fed hikes the U.S. interest rate relative to interest rates in other countries, it will increase the demand for dollars as investors seek higher returns. However, it will decrease the supply of dollars as the higher interest rates make it more expensive for U.S. corporations and government to borrow. Therefore, the exchange rate will rise as demand outstrips supply.

If the Fed Hikes the U