When would the exchange rate rise the most?
A)The supply of and demand for dollars both increase.
B)The supply of dollars increases, and the demand for dollars decreases.
C)The supply of dollars decreases, and the demand for dollars increases.
D)The supply of and demand for dollars both decrease.
E)The Bank of Canada intervenes.

Question

Quizplus · Accepted Answer

A decrease in the supply of dollars means there is less of it on the market, which typically results in a higher exchange rate. Meanwhile, an increase in demand for dollars means more people are looking to purchase it, which also increases the exchange rate. Therefore, when both of these factors occur simultaneously, it is likely that the exchange rate will rise the most.

When Would the Exchange Rate Rise the Most