If a dollar is cheaper in terms of a foreign currency than the equilibrium exchange rate,what will happen in the foreign exchange market?

Question

Quizplus · Accepted Answer

If a dollar is cheaper in terms of a foreign currency than the equilibrium exchange rate, it means that the foreign currency is stronger than the dollar. This makes imports from the foreign country more expensive for Americans and American exports cheaper for foreigners. As a result, foreigners will demand more American goods and services, increasing the demand for dollars, and reducing the supply of foreign currency. This leads to a shortage of dollars in the foreign exchange market, and upward pressure on the exchange rate.

If a Dollar Is Cheaper in Terms of a Foreign