The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates.
Figure 12.2.The Market for Swiss Francs

-Refer to Figure 12.2.If Swiss manufacturing costs increase relative to those of the United States,there would occur an increase in the supply of francs and an appreciation in the dollar's exchange value.

Question

The figure below illustrates the supply and demand schedules of Swiss francs under a system of floating exchange rates.
Figure 12.2.The Market for Swiss Francs
 
-Refer to Figure 12.2.If Swiss manufacturing costs increase relative to those of the United States,there would occur an increase in the supply of francs and an appreciation in the dollar's exchange value.

Quizplus · Accepted Answer

An increase in Swiss manufacturing costs relative to those of the United States would mean that Swiss goods are relatively more expensive compared to those of the US. As a result, demand for Swiss francs would decrease as people would buy fewer Swiss goods. This would lead to an increase in the supply of francs in the foreign exchange market, causing the franc to depreciate relative to the dollar, and the dollar to appreciate in value.

The Figure Below Illustrates the Supply and Demand Schedules of Swiss