How do rising interest rates in the European Union typically 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 higher investment in U.S. assets.

Demand for the U.S. dollar remains unchanged as interest rates do not influence currency value.

Demand for the U.S. dollar decreases because it becomes less attractive than the Euro.

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Answer

When interest rates rise in the European Union, borrowing money becomes more expensive for people and businesses in that region. This can lead to less spending and investment in Europe, making the euro less attractive compared to the U. S. dollar. As investors seek better returns, they might move their money from Europe to the U.

Detailed Explanation

When interest rates go up in Europe, investors want to earn more money. Other options are incorrect because Some might think higher rates in Europe make U.S; It's a common belief that interest rates don't matter for currency value.

Key Concepts

Capital Flows

Currency Valuation

Interest Rates

Topic

Capital Flows and Currency Value

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easy level question

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understand

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