Question: Under Monetary Approach to Exchange Rates approach, explain how a rise in domestic interest rate US ( Rus ) affects the nominal exchange rate E$/

Under "Monetary Approach to Exchange Rates" approach, explain how a rise in domestic interest rate US ( Rus ) affects the nominal exchange rate E$/ (rise or fall). What does the change on the nominal exchange rate mean (appreciation or depreciation of US dollar against euro)? Write down the chains of events step by step. When explaining the relationship, please use monetary factors equation to predict how exchange rates adjust in the long run, based on the absolute version of PPP. Domestic country is US and foreign country is EU. (15 pts)

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