Question

Other things the same, an increase in the U.S. interest rate causes U.S. net capital outflow to a. rise, so supply in the market for foreign-currency exchange shifts right. b. rise, so demand in the market for foreign-currency exchange shifts right. c. fall, so supply in the market for foreign-currency exchange shifts left.

Answer 1

Answer:

b. rise, so demand in the market for foreign-currency exchange shifts right.

Explanation:

• An increase in the interest rates leads to a rise in the capital outflow as savings and investment lead to more net capital outflow.

• This is the movement of the assets on the company and is considered to be bad for the economy and leads to undesirable changes in the supply of the foreign currency as a shift in the demands of the consumers. This may result in political and economic instability.