The lower the exchange rate today, ceteris paribus, the
A)smaller the quantity of Australian dollars demanded in the foreign exchange market today.
B)smaller is the expected profit from buying Australian dollars today and holding them.
C)greater is the expected profit from buying foreign currency today and holding it.
D)greater is the expected profit from buying Australian dollars today and holding them.

Question

Quizplus · Accepted Answer

A lower exchange rate makes Australian dollars cheaper, increasing the potential for profit when they are expected to appreciate in the future, thus increasing the expected profit from buying and holding them.

The Lower the Exchange Rate Today, Ceteris Paribus, the