I need help answering and explaining this question Suppose t

I need help answering and explaining this question.

Suppose that the U.S. and European Union (EU) are the only trading partners in the world. If interest rates in the U.S. are significantly lower than those in the EU, we would expect: O a) the demand for euros to decrease, depreciating the euro. O b) the demand for the dollar to fall, depreciating the dollar. c) the supply of the dollar to fall, appreciating the dollar. O d) the supply of euros to increase, depreciating the euro.

Solution

If interest rate in US are significantly lower than those in EU then there will be capital inflow EU and capital outflow in US. Thus demand for Euro will increase and demand of dollar decreases which leads to depreciation of the dollar.

Thus ans is B