An increase in capital inflows in the United States will result in a(n) _____ foreign currency and a(n) _____ the U.S. dollars in the foreign exchange market.

Question

Quizplus · Accepted Answer

An increase in capital inflows means that there is an increase in the supply of dollars in the foreign exchange market. This is because foreigners are buying dollars to invest in the US. As a result, there will be an increase in the supply of dollars and an increase in the demand for foreign currency (e.g. yen, euro, etc.), which would lead to a decrease in its value relative to the dollar. Choice B reflects this relationship.

An Increase in Capital Inflows in the United States Will