Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The demand for the U.S. dollar will decrease, leading to a depreciation of the dollar against the Euro.
B
The demand for the U.S. dollar will increase, causing an appreciation of the dollar against the Euro.
C
The demand for the U.S. dollar will remain unchanged as interest rates do not affect currency value.
D
The demand for the U.S. dollar will decrease, but the exchange rate will remain stable due to other economic factors.
Understanding the Answer
Let's break down why this is correct
Answer
When interest rates in the European Union rise, it often attracts foreign investors looking for better returns on their investments. This increased interest in European assets leads to a higher demand for Euros, as investors need to exchange their U. S. dollars for Euros to invest. As a result, the demand for the U.
Detailed Explanation
When interest rates go up in Europe, investors want to put their money there to earn more. Other options are incorrect because Some might think higher interest rates in Europe would make the dollar stronger; It's a common mistake to think interest rates don't affect currency value.
Key Concepts
Capital Flows
Currency Value
Interest Rates
Topic
Capital Flows and Currency Value
Difficulty
hard level question
Cognitive Level
understand
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