AP Macroeconomics Question 240: Answer and Explanation
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7. If interest rates rise relatively more in country A than in country B, then the value of country A's currency will
- A. appreciate.
- B. depreciate.
- C. remain unchanged.
- D. change indeterminately.
- E. depreciate by the difference in interest rates.
Correct Answer: A
(A) When interest rates rise in country A, people from country B will want to place loans there. People from country B will need to obtain the currency of country A in order to do this. The demand for country A's currency rises. This causes it to appreciate.