An increase in the U.S. demand for foreign exchange will cause

Question

Quizplus · Accepted Answer

An increase in the demand for foreign exchange means that U.S. residents want to buy more foreign goods or assets, which requires more U.S. dollars to be exchanged for foreign currency. This increase in demand for foreign currency puts upward pressure on the price of foreign exchange, which means that the U.S. dollar depreciates. A depreciation of the U.S. dollar makes foreign goods more expensive to U.S. residents, as it takes more dollars to buy the same amount of foreign currency. Therefore, the correct answer is (B).

An Increase in the U