-In the figure above, the shift in the supply curve for U.S. dollars from S₀ to S₁ could occur when A) the expected future exchange rate rises. B) the U.S. interest rate differential decreases. C) the expected future exchange rate falls. D) the current exchange rate falls.

Question

Quizplus · Accepted Answer

A shift in the supply curve for U.S. dollars could occur when the expected future exchange rate rises, as investors might hold onto their dollars now in anticipation of exchanging them at a more favorable rate in the future, thus reducing the current supply of dollars in the foreign exchange market.

-In the Figure Above, the Shift in the Supply Curve