The supply of foreign exchange is
A) Determined by the real exchange rate.
B) Independent of the real exchange rate.
C) Determined by central bankers.
D) Determined by the government of the country concerned.

Question

Quizplus · Accepted Answer

The supply of foreign exchange is determined by the willingness of foreigners to hold and use the currency of the country concerned. It is independent of the real exchange rate because it is not based on the current price of goods and services in the country. Central bankers and the government of the country concerned can affect the supply of foreign exchange through policies such as interest rate adjustments and foreign exchange market interventions, but ultimately it is driven by market forces outside of their control.

The Supply of Foreign Exchange Is