Suppose the market for dollars is in equilibrium, then the expected future exchange rate rises. What effect does this change have on the current exchange rate?

Question

Quizplus · Accepted Answer

An increase in the expected future exchange rate will lead to an increase in the current exchange rate. This is because an increase in the expected future exchange rate makes it more attractive to hold dollars now, which increases the demand for dollars and leads to an increase in the current exchange rate.

Suppose the Market for Dollars Is in Equilibrium, Then the Expected