Consider the market for dollars. The higher the exchange rate, the is the expected profit from holding foreign currency and the greater is the .

Question

Quizplus · Accepted Answer

The higher the exchange rate, the more profitable it is to hold foreign currency, which will lead to an increased quantity of dollars supplied as people and businesses will want to sell more dollars to acquire foreign currency. Therefore, the correct answer is B, larger quantity of dollars supplied. Choice A is incorrect because a smaller expected profit from holding foreign currency would lead to a decreased quantity of dollars supplied. Choices C and D are incorrect because changes in the exchange rate would affect the demand curve for dollars, not the supply curve.

Consider the Market for Dollars