If the equilibrium exchange rate is 110 yen per dollar and the current exchange rate is 120 yen per dollar, then the
A)demand curve for Canadian dollars shifts leftward.
B)supply curve of Canadian dollars shifts leftward.
C)supply curve of Canadian dollars shifts rightward.
D)dollar will depreciate.
E)demand curve for Canadian dollars shifts rightward.

Question

Quizplus · Accepted Answer

The current exchange rate being higher than the equilibrium exchange rate indicates that the dollar is overvalued relative to the yen, therefore it will likely depreciate in order to reach the equilibrium exchange rate. This has no effect on the demand or supply of Canadian dollars.

If the Equilibrium Exchange Rate Is 110 Yen Per Dollar