Chapter 3, Short Answer 1. Very often governments seek to alter the market's valuation of their currency by influencing relative interest rates (for example, the U.S.'s Federal Reserve System may sell U.S. government bonds to drive domestic interest rates up to attract dollars), thus influencing the economic fundamentals of exchange rate determination, rather than through direct intervention in the foreign exchange markets (that is, the Fed buys up foreign exchange on the open global markets, flooding the market with dollars). a. Briefly describe how this interest rate strategy works; and, b. briefly describe the case of the U.S., where recently the opposite effect (that is, investment in the U.S. has increased, despite close-to 0% domestic interest rates), has occurred. Chapter 3, Short Answer 1. Very often governments seek to alter the market's valuation of their currency by influencing relative interest rates (for example, the U.S.'s Federal Reserve System may sell U.S. government bonds to drive domestic interest rates up to attract dollars), thus influencing the economic fundamentals of exchange rate determination, rather than through direct intervention in the foreign exchange markets (that is, the Fed buys up foreign exchange on the open global markets, flooding the market with dollars). a. Briefly describe how this interest rate strategy works; and, b. briefly describe the case of the U.S., where recently the opposite effect (that is, investment in the U.S. has increased, despite close-to 0% domestic interest rates), has occurred