Suppose the current exchange rate of Euro per dollars is 0.75 while the equilibrium exchange rate is 0.70. This implies that:

Question

Quizplus · Accepted Answer

The current exchange rate of Euro per dollars is higher than the equilibrium exchange rate. This means that the quantity of dollars supplied exceeds the quantity of dollars demanded by Italy, resulting in an excess supply of dollars in the foreign exchange market. As a result, the exchange rate will tend to decrease to reach the equilibrium level, where the quantity of dollars demanded and supplied are equal.

Suppose the Current Exchange Rate of Euro Per Dollars Is