Introduction to the foreign-currency exchange market In an open economy, why is the demand curve in...

Introduction to the foreign-currency exchange market

In an open economy, why is the demand curve in the foreign-currency exchange market downward sloping?

A) Net capital outflow equals net exports.

B) A depreciation in the domestic currency causes exports to fall and imports to rise and, therefore, net exports to fall.

C) When the value of the domestic currency depreciates, domestic goods become less expensive relative to foreign goods, making domestic goods more attractive to domestic and foreign consumers.

D) A depreciation of the dollar reduces the quantity of dollars demanded in the market for foreign-currency exchange.

Solutions

Expert Solution

Ans:

C) When the value of the domestic currency depreciates, domestic goods become less expensive relative to foreign goods, making domestic goods more attractive to domestic and foreign consumers.

The demand curve for foreign currency is downward sloping because a higher exchange rate makes domestic goods more expensive and viceversa.

Rahul Sunny answered 2 years ago

Next > < Previous

Related Solutions

In an open economy, why is the demand curve in the foreign-currency exchange market downward sloping?...

In an open economy, why is the demand curve in the foreign-currency exchange market downward sloping? A. A depreciation in the domestic currency causes exports to fall and imports to rise and, therefore, net exports to fall. B. A depreciation of the dollar reduces the quantity of dollars demanded in the market for foreign-currency exchange. C. When the value of the domestic currency depreciates, domestic goods become less expensive relative to foreign goods, making domestic goods more attractive to domestic...

In an open economy, why is the supply curve for dollars in the foreign-currency exchange market...

In an open economy, why is the supply curve for dollars in the foreign-currency exchange market vertical? Answers: Net capital outflow is determined by real GDP, not the real exchange rate. Net capital outflow is extremely sensitive to small changes in the real exchange rate. Net capital outflow is determined by the real interest rate, not the real exchange rate. Net capital outflow equals net exports.

In an open economy, why is the supply curve in the foreign-currency exchange market vertical? Net...

In an open economy, why is the supply curve in the foreign-currency exchange market vertical? Net capital outflow is determined by real GDP, not the real exchange rate. Net capital outflow is extremely sensitive to small changes in the real exchange rate. Net capital outflow is determined by the real interest rate, not the real exchange rate. Net capital outflow equals net exports.

1. In an open economy, what is the source of supply in the foreign-currency exchange market?...

1. In an open economy, what is the source of supply in the foreign-currency exchange market? A. Net exports B. Exports C. Investment and Net Capital outflow D. Net Capital outflow Next question::: 2. When there is a budget deficit, will net exports increase or decrease? Next question::: 3. You have just been hired by the Canadian government to analyze the following scenario. Suppose the Canadian pharmaceutical industry is concerned with foreign prescription drug producers exporting...

Use the Market for Loanable Funds, Net Foreign Investment and the Market for Foreign Currency Exchange...

Use the Market for Loanable Funds, Net Foreign Investment and the Market for Foreign Currency Exchange diagrams combined, to examine the impact of a removal of import tariff on each market. In your answer make sure that you fully explain the impact in each market and that you comment on the impact on each of the following variables: 1)private saving 2)public saving 3)national saving 4)investment 5)net foreign investment 6)exchange rate 7)net exports

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate

If the supply of dollars in the market for foreign-currency exchange shifts left, then the exchange rate rises and the quantity of dollars exchanged falls. rises and the quantity of dollars exchanged does not change. rises and the quantity of dollars exchanged rises. falls and the quantity of dollars exchanged does not change. If a country has a trade deficit It has positive net exports and positive net capital outflow. It has positive net exports and negative net capital...

Given a currency pair, what happens to the exchange rate if the foreign exchange market is...

Given a currency pair, what happens to the exchange rate if the foreign exchange market is in disequilibrium? Does it matter if the exchange rate is above or below the equilibrium rate? Understand what market forces drive the exchange rate back to equilibrium in both cases, whether or not the cases are different.

Discuss the importance of the market for loanable funds and the market for foreign-currency exchange economic...

Discuss the importance of the market for loanable funds and the market for foreign-currency exchange economic growth.

One function of the foreign exchange market is to convert the currency of one country into...

One function of the foreign exchange market is to convert the currency of one country into the currency of another. A second function of the foreign exchange market is to provide insurance against foreign exchange risk. The most common approach to exchange rate forecasting is fundamental analysis. This relies on variables such as money supply growth, inflation rates, nominal interest rates, and balance-of-payment positions to predict future changes in exchange rates. Identify a country outside of the U.S. and its...

Where does the supply of dollars in the foreign-currency exchange market come from?

Where does the supply of dollars in the foreign-currency exchange market come from? a. from Canadian national saving b. from Canadian net capital outflow c. from domestic investment d. from foreign demand for Canadian goods

Subjects