A decrease in the foreign interest rate causes the demand for domestic assets to shift to the and the domestic currency to , everything else held constant. Question 2 options: A) right; appreciate B) left; appreciate C) right; depreciate D) left; depreciate

A. Right; appreciate

Explanation:

A decrease in foreign interest rate will lead to a decrease in the foreign investment because lower interest rate are very unattractive to investors. This will then lead to and increase in the demand for domestic assets causing the demand curve for domestic assets to shift to the right. And of course, an increase in the demand for local assets will lead to domestic currency appreciating. Basically, when all things are held constant, when there's high demand, prices of the goods demanded rises which leads to currency appreciating in values.