Under flexible exchange rates,
A)the value of the dollar is determined by supply and demand.
B)the demand for dollars is determined by foreign demand for U.S. goods, services, and securities.
C)ceteris paribus, the quantity demanded of dollars is inversely related to the exchange rate.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Under flexible exchange rates, the value of the dollar is determined by supply and demand, specifically by the demand for dollars, which is in turn determined by foreign demand for U.S. goods, services, and securities. Ceteris paribus, the quantity demanded of dollars is inversely related to the exchange rate, meaning that as the exchange rate rises, the quantity demanded of dollars decreases. Therefore, all of the above choices are correct.

Under Flexible Exchange Rates