If the expected future exchange rate decreases, then the supply of dollars ________ and the demand for dollars ________.

Question

Quizplus · Accepted Answer

If the expected future exchange rate decreases, people expect the dollar to be weaker in the future. This leads to an increase in the supply of dollars as people want to exchange dollars for other currencies before the value drops. Simultaneously, the demand for dollars decreases because foreign investors expect the dollar to be worth less in the future.

If the Expected Future Exchange Rate Decreases, Then the Supply