The demand for foreign exchange rises as the exchange rate (S) falls because:
A) the demand for imports rises
B) the domestic currency price of imports falls
C) the demand for exports rises
D) both the domestic currency price of imports falls AND the demand for imports rises

Question

Quizplus · Accepted Answer

When the exchange rate falls, the domestic currency price of imports decreases, making imports cheaper for domestic consumers. This leads to an increase in the demand for imports, as they become more affordable compared to domestically produced goods.

The Demand for Foreign Exchange Rises as the Exchange Rate