A decrease in the expected future exchange rate ________ the demand for U.S. dollars and shifts the demand curve for U.S. dollars ________.
A) increases; rightward
B) decreases; rightward
C) decreases; leftward
D) increases; leftward

Question

Quizplus · Accepted Answer

A decrease in the expected future exchange rate decreases the demand for U.S. dollars because investors and consumers anticipate that they will get fewer units of foreign currency per dollar in the future. This expectation makes holding dollars less attractive, leading to a decrease in demand and a leftward shift of the demand curve for U.S. dollars.

A Decrease in the Expected Future Exchange Rate ________ the Demand