If the Swiss demand for dollars is elastic,an appreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

Question

Quizplus · Accepted Answer

If the demand for dollars is elastic, it means that a change in the exchange rate will significantly impact the quantity demanded. In this case, an appreciation of the dollar (i.e., the dollar becoming more expensive) will make it less attractive to Swiss buyers, and they will demand fewer dollars. To obtain the same amount of dollars, they will have to supply more francs to the foreign exchange market. Therefore, an appreciation of the dollar against the franc will lead to a greater quantity of francs being supplied to the foreign exchange market to obtain dollars.

If the Swiss Demand for Dollars Is Elastic,an Appreciation of the Dollar