HomeQuestionsEconomicsCapital Flows and Currency Value
📚 Learning Guide
Capital Flows and Currency Value
medium

If interest rates in the European Union increase, what is the most likely underlying cause of the resulting decrease in demand for the U.S. dollar?

Master this concept with our detailed explanation and step-by-step learning approach

Learning Path
Learning Path

Question & Answer
1
Understand Question
2
Review Options
3
Learn Explanation
4
Explore Topic

Choose the Best Answer

A

Investors seek higher returns in Europe, leading to capital outflows from the U.S.

B

The U.S. economy becomes more stable compared to Europe, attracting foreign investment.

C

The European Central Bank decreases the money supply, making the Euro less valuable.

D

U.S. interest rates fall, making the dollar less appealing to investors.

Understanding the Answer

Let's break down why this is correct

Answer

When interest rates in the European Union increase, it often makes investments in Europe more attractive to investors. Higher interest rates mean that people can earn more money from their savings and investments in the EU compared to those in the U. S. As a result, investors may move their money from the U. S.

Detailed Explanation

When interest rates go up in Europe, investors want to earn more money. Other options are incorrect because This suggests that the U.S; This option implies that a lower money supply makes the Euro less valuable.

Key Concepts

Interest Rates
Capital Flows
Currency Valuation
Topic

Capital Flows and Currency Value

Difficulty

medium level question

Cognitive Level

understand

Ready to Master More Topics?

Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.

Start Learning with SeekhExplore More Capital Flows and Currency Value Questions