Lower US interest rates increase USD supply in forex market Steps:

• US interest rate fall reduces attractiveness of US assets, prompting US investors to buy foreign assets.
• US investors sell more USD for foreign currency, increasing USD supply.
• Supply curve shifts right from S1 (initial) to S2 (final).
• Demand for USD stays at D1; exchange rate falls, depreciating USD.

Why C is correct:

• Labels initial supply S1, final supply S2 (rightward shift), and demand D1 for both, per capital flow effects on forex supply in open-economy macroeconomics.

Why the others are wrong:

• A: Indicates no shifts (S1/S1, D1/D1), failing to show depreciation cause.
• B: Implies supply shift left (S2 to S1) and demand left (D1 to D2), causing appreciation or unclear effect.
• D: Keeps supply S1/S1 but labels both demand D2, showing no demand shift.

Final answer: C