As the expected future exchange rate for dollars increases,

Question

Quizplus · Accepted Answer

- If the expected future exchange rate for dollars increases, it means that other countries are willing to pay more for each dollar. Therefore, people will want to hold onto their dollars to sell them later for a higher price, leading to a decrease in the supply of U.S. dollars (answer A).
- As the expected future exchange rate increases, the profit from selling U.S. dollars today also increases. Therefore, if the exchange rate is expected to increase even further in the future, the expected profit from selling U.S. dollars today falls (answer B).
- The U.S. interest rate is not directly affected by the expected future exchange rate for dollars, so answer C is not correct.

As the Expected Future Exchange Rate for Dollars Increases