The foreign exchange market is stable when:
A)The demand curve of foreign exchange is negatively inclined and the supply curve of foreign exchange is positively inclined
B)the supply curve of foreign exchange is negatively inclined and less elastic than the demand curve
C)the sum of the absolute values of the elasticity of the nation's demand of imports and the foreign demand for the nation's exports is greater than one
D)all of the above

Question

Quizplus · Accepted Answer

The foreign exchange market is considered stable when the conditions in all the given options are met: A) typical demand and supply curve orientations ensure that as price changes, the market moves towards equilibrium; B) specific curve inclinations and elasticity conditions affect market responses to price changes; and C) the Marshall-Lerner condition (sum of elasticities > 1) ensures that a devaluation improves the trade balance, contributing to market stability.

The Foreign Exchange Market Is Stable When