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"When a central bank expands the money supply," domestic interest rates rise and the exchange rate...

"When a central bank expands the money supply,"

domestic interest rates rise and the exchange rate rises

domestic interest rates fall and the exchange rate rises

domestic interest rates rise and the exchange rate falls

domestic interest rates fall and the exchange rate falls

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Answer #1

As we know, when the central bank expands the money supply, the money supply curve will shift to the right that implies the domestic interest-rate will fall and as the domestic interest-rate will fall there will be a capital outflow from the domestic economy as investors will take out their money due to the lower interest rate and domestic investors will also start looking for the alternative investment options in the foreign countries which will increase their demand for the foreign currency, therefore, they will demand more of the foreign currency which will put the upward pressure on the exchange rate as well and as a result exchange rate will rise. So, the right answer is domestic interest rates fall and the exchange rate rises.

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