Equilibrium exchange rate occurs when quantity supplied equals quantity demanded of:
A)a local currency at a specific local price
B)a local currency at a specific foreign price
C)a foreign currency at a specific local price
D)a foreign currency at a specific foreign price

Question

Quizplus · Accepted Answer

Equilibrium exchange rate occurs when quantity supplied equals quantity demanded of a foreign currency at a specific local price.
Key Takeaway: Currency in a market is valued at a higher price when the demand for it exceeds the supply available. When an equilibrium exchange rate is achieved, quantity supplied and quantity demanded of a foreign currency are equal at a specific local price. For example, the US dollar is in an equilibrium exchange rate if the quantity requested and quantity available are equal at an exchange rate of 0.75Euros.

Equilibrium Exchange Rate Occurs When Quantity Supplied Equals Quantity Demanded