A simultaneous increase in U.S. demand for German products and decrease in the desire of German investors to send funds to the United States would, under a flexible exchange Rate system and with other things equal, lead to __________ of the U.S. dollar against the euro and to __________ of the euro against the dollar.

Question

Quizplus · Accepted Answer

If the demand for German products in the US increases, it means Americans need to exchange more dollars for euros to purchase German goods, thus increasing the demand for the euro on the foreign exchange market. At the same time, if German investors are less interested in investing their funds in the US, it means they will sell their dollars, decreasing the demand for the US dollar. Therefore, the dollar will depreciate against the euro, and the euro will appreciate against the dollar.

A Simultaneous Increase in U