Scenario 33-1
Suppose that political instability in other countries makes people fear for the value of their assets in these countries so that they desire to purchase more U.S assets.
-Refer to Scenario 33-1. What would happen to the dollar?
A)It would appreciate in foreign exchange markets making U.S.goods more expensive compared to foreign goods.
B)It would appreciate in foreign exchange markets making U.S.goods less expensive compared to foreign goods.
C)It would depreciate in foreign exchange markets making U.S.goods more expensive compared to foreign goods.
D)It would depreciate in foreign exchange markets making U.S.goods less expensive compared to foreign goods.

Question

Quizplus · Accepted Answer

When there is an increased demand for U.S. assets, more foreign currency is exchanged for dollars to make these purchases, leading to an appreciation of the dollar in foreign exchange markets. This appreciation makes U.S. goods more expensive compared to foreign goods.

Scenario 33-1 Suppose That Political Instability in Other Countries Makes People Fear