As the price of foreign exchange decreases relative to the U.S. dollar, the _____

Question

Quizplus · Accepted Answer

When the price of foreign exchange decreases relative to the U.S. dollar, it means that the U.S. dollar has appreciated in value. This makes goods made in foreign countries cheaper for Americans because they can exchange fewer dollars for the same amount of foreign currency needed to purchase those goods. On the other hand, products made in the United States become relatively more expensive for foreigners, because they will need to exchange more of their own currency to buy the same amount of U.S. dollars. The amount of foreign currency required to purchase a unit of U.S. dollar decreases, which means the demand curve for foreign exchange shifts to the right and the supply curve of foreign exchange to U.S. markets increases. However, neither of these options is listed in the choices.

As the Price of Foreign Exchange Decreases Relative to the U.S