Question

which of the following events would result in greater demand for u.s. dollars in the foreign-exchange market?group of answer choicesan increase in the interest rates in the u.s.an increase in the interest rates in japan.higher tariffs imposed by the u.s. on imports.more quotas imposed by the u.s. on imports.

Answer 1

Increasing U.S. interest rates leads to greater demand for U.S. dollars in the foreign-exchange market, as investors seek higher returns from U.S. assets, causing the U.S. dollar to appreciate. The correct answer is option: a) an increase in the interest rates in the U.S.

Step-by-step explanation:

The event that would result in greater demand for U.S. dollars in the foreign-exchange market is an increase in the interest rates in the U.S.. When U.S. interest rates rise relative to other countries, the return on investments in the U.S. such as government bonds becomes more attractive to international investors.

This causes more investors to demand U.S. dollars in order to invest in these higher-yielding assets, shifting the demand for U.S. dollars on the foreign exchange market to the right. Concurrently, fewer investors are willing to supply U.S. dollars to the market, shifting the supply curve to the left. As a result, the exchange rate of the U.S. dollar appreciates, and the currency strengthens.