If consumer tastes in the United States change in favor of goods produced in France,the demand for francs will increase which causes an appreciation of the dollar against the franc under a floating exchange rate system.

Question

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If consumer tastes in the United States change in favor of goods produced in France, there will be an increase in demand for francs, causing the franc to appreciate against the dollar. This is because an increase in demand for francs means that more dollars are being exchanged for francs, which increases the demand for francs relative to the supply. This, in turn, causes the price of francs to increase in terms of dollars, resulting in a depreciation of the dollar against the franc.

If Consumer Tastes in the United States Change in Favor