Right now the United States has some of the lowest interest rates in the world.

Question

Right now the United States has some of the lowest interest rates in the world. This would: (a) cause the USD to appreciate more foreign investors buy dollars to loan money in the United States because of low interest rates. (b) cause the USD to depreciate as fewer foreign investors buy dollars to loan money in the United States because of low interest rates. (c) not affect the value of the USD because interest rates are set by the supply and demand for dollars in the United States, while exchange rates are set by the supply and demand for dollars in the Rest of the World. (d) cause interest rates to go up since what goes down must come up.

Explanation / Answer

All other things remaining constant, higher interest rate makes the currency of that country strong compared to other countries. Though interest rate can be a major factor influencing currency but there is other important factors affecting currency ie economical and political stability.

United states is one such example where interest rates are very low in order to stimulate the economy but even then also it attracts a lot of foreign inventors because USD is considered to be very safe and stable and it holds a lot of reserve.

Thus answer-c

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