Consider the market for dollars. The higher the exchange rate, the ________ is the expected profit from holding foreign currency and the greater is the ________.

Question

Quizplus · Accepted Answer

When the exchange rate is higher, holding foreign currency becomes more profitable because it can be exchanged for more dollars in the future, leading to an increase in the quantity of dollars supplied as people are more willing to exchange their foreign currency for dollars.

Consider the Market for Dollars