Changes in currency value.

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Chapter 18, Problem 6CQQ

To determine

Changes in currency value.

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Under flexible exchange rate regime, the spot exchange rate a. Is maintained by the monetary authority's intervention to buy domestic currency b. Increase in the demand of the domestic currency causes appreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the right. c. Increase in the demand of the domestic currency causes depreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the right. d. Increase in the demand of the domestic currency causes appreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the left. e. Increase in the demand of the domestic currency causes depreciation of the currency (the exchange rate is foreign/domestic) which in turn shifts demand to the left. f. None of the above

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If there is a decrease in the desire of foreigners to purchase goods and services from the United States and a lower desire to invest in U.S. banks and businesses, then how would this affect the U.S. foreign exchange market? A. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would depreciate. B. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would appreciate. C. The equilibrium quantity of foreign currency would increase and the U.S. dollar would depreciate. D. The equilibrium quantity of foreign currency would increase and the U.S. dollar would appreciate.