Under flexible (floating)exchange rates, a U.S. trade deficit with Japan will eventually cause the dollar price of yen to rise.

Question

Quizplus · Accepted Answer

Under a flexible exchange rate system, a trade deficit with Japan would increase the demand for yen (as the U.S. needs more yen to pay for its imports) and decrease the demand for dollars (as Japan receives more dollars than it needs for its exports to the U.S.). This change in demand causes the dollar to depreciate relative to the yen, making the dollar price of yen rise.

Under Flexible (Floating)exchange Rates, a U