Because depreciation of the real exchange rate of the dollar increases Canadian net exports, the demand curve for dollars in the foreign-currency exchange market is upward sloping.

Question

Quizplus · Accepted Answer

The demand curve for dollars in the foreign-currency exchange market is downward sloping because as the value of the dollar depreciates (or the real exchange rate decreases), foreign currencies become more expensive in terms of dollars, making US goods cheaper for foreigners and increasing the demand for dollars to purchase these cheaper goods.

Because Depreciation of the Real Exchange Rate of the Dollar