Anything that increases the demand for foreign goods relative to domestic goods tends to ________ the domestic currency because domestic goods will only continue to sell well if the value of the domestic currency is ________,everything else held constant.

Question

Quizplus · Accepted Answer

If the demand for foreign goods increases relative to domestic goods, people would need to exchange their domestic currency for the foreign currency in order to purchase the foreign goods. This increase in demand for foreign currency would decrease the demand for the domestic currency, causing it to depreciate. Conversely, if the value of the domestic currency is lower, domestic goods will become relatively cheaper and more attractive to foreign buyers, thereby increasing demand for the domestic currency and causing it to appreciate.

Anything That Increases the Demand for Foreign Goods Relative to Domestic