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Capital Flows and Currency Value
easy

When interest rates rise in the European Union, the value of the Euro typically _____ relative to the U.S. dollar due to increased capital inflows.

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Choose the Best Answer

A

decreases

B

remains stable

C

increases

D

fluctuates unpredictably

Understanding the Answer

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Answer

When interest rates rise in the European Union, it generally means that investors can earn more money from their savings or investments there. This attracts more capital, or money, from other countries, including the U. S. As more investors buy Euros to invest in the EU, the demand for the Euro increases, which often raises its value compared to the U. S.

Detailed Explanation

When interest rates go up, investors want to put their money in that country to earn more. Other options are incorrect because Some might think higher interest means less value; People may believe the Euro stays the same.

Key Concepts

Capital Flows
Currency Valuation
Interest Rates
Topic

Capital Flows and Currency Value

Difficulty

easy level question

Cognitive Level

understand

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