How do rising interest rates in the European Union affect the demand for the U.S. dollar?

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Demand for the U.S. dollar decreases as investors seek higher returns in Europe.

Demand for the U.S. dollar increases due to foreign investors diversifying.

Demand for the U.S. dollar remains unchanged as currency values are fixed.

Demand for the U.S. dollar decreases because of increased domestic production.

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Answer

When interest rates rise in the European Union, it often makes borrowing money more expensive in Europe. This can lead to less spending and investment in the EU, which can slow down the economy. As a result, investors may look for safer places to put their money, and the U. S. dollar is often seen as a safe haven.

Detailed Explanation

When interest rates go up in Europe, investors want to earn more money. Other options are incorrect because Some might think that higher interest rates in Europe make investors want to spread their money around; It's a common belief that currency values stay the same.

Key Concepts

Capital Flows

Currency Valuation

Interest Rates

Topic

Capital Flows and Currency Value

Difficulty

medium level question

Cognitive Level

understand

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