Which of the following statements correctly describes a relationship to exchange rates?(1 point)

Question

Responses

Higher interest rates in a domestic country are associated with lower exchange rates for its currency.
Higher interest rates in a domestic country are associated with lower exchange rates for its currency.

Lower exchange rates for a domestic country are associated with lower interest rates in that country.
Lower exchange rates for a domestic country are associated with lower interest rates in that country.

Lower inflation, relative to other countries, is associated with lower exchange rates.
Lower inflation, relative to other countries, is associated with lower exchange rates.

The exchange rate may fall if the currency is expected to appreciate.

Answer 1

The following statement correctly describes the relationship to exchange rates:

Higher interest rates in a domestic country are associated with higher exchange rates for its currency.

However, none of the options provided in your question correctly match this statement.

Normally, higher interest rates attract foreign investment, increasing demand for the domestic currency and driving up its value, which indicates a higher exchange rate for that currency, not lower.

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