The law of demand in the foreign exchange market refers to the relationship between the
A) U.S. price level and the exchange rate
B) interest rate and the exchange rate
C) exchange rate and the quantity of U.S. dollars demanded
D) interest rate and the quantity of U.S. dollars demanded

Question

Quizplus · Accepted Answer

The law of demand in the foreign exchange market states that there is an inverse relationship between the exchange rate and the quantity of currency demanded. As the exchange rate (price of foreign currency) increases, the quantity of U.S. dollars demanded decreases. Conversely, as the exchange rate decreases, the quantity of U.S. dollars demanded increases. Therefore, option C is the best choice as it directly refers to the relationship between exchange rate and quantity demanded.

The Law of Demand in the Foreign Exchange Market Refers