Option 1: (C), (A), (D), (B) -> The sequential order of consequences begins with (C) investors from country A being attracted by higher interest rates in country B and buying country B's currency while selling country A's currency. This leads to (A) people finding country B more attractive and demanding less of country A's currency. This shift in investor behavior causes (D) the demand curve for country A's currency to shift left (decreased demand) and supply curve to shift right (increased supply). Finally, this results in (B) depreciation of country A's currency and appreciation of country B's currency, which is the ultimate market outcome of the interest rate differential. -> correct
Suppose that government bonds in country A pay 8 per cent rate of interest whereas equally safe bonds in country B yield 10 per cent. The interest…
CUET UG 2025 — Economics Macro
2025mcqmedium
Suppose that government bonds in country A pay 8 per cent rate of interest whereas equally safe bonds in country B yield 10 per cent. The interest rate differential is 2 per cent. Arrange the consequences of the same in sequential order.
(A) People will find investing in country B more attractive and will therefore demand less of country A's currency.
(B) Depreciation of country A's currency and an appreciation of country B's currency.
(C) Investors from country A will be attracted by the high interest rates in country B and will buy the currency of country B selling currency of country A.
(D) The demand curve for country A's currency will shift to the left and the supply curve will shift to the right.
Choose the correct answer from the options given below:
Official previous-year question
Held on 21 May 2025 · Verified 13 Jul 2026.
Options
- A
(C), (A), (D), (B)
- B
(B), (C), (A), (D)
- C
(B), (A), (D), (C)
- D
(C), (B), (D), (A)
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