Under a flexible-exchange-rate system,an increase in the demand for Japanese yen would cause the Canadian dollar/Japanese yen exchange rate to
A)fall.
B)rise.
C)remain unchanged because supply also increases.
D)remain unchanged because the exchange rate is set by the Central Bank.

Question

Quizplus · Accepted Answer

In a flexible-exchange-rate system, the exchange rate is determined by market forces of supply and demand. An increase in demand for Japanese yen means there are more buyers in the market, which leads to an increase in the exchange rate of Canadian dollars to Japanese yen. Therefore, the Canadian dollar/Japanese yen exchange rate would rise.

Under a Flexible-Exchange-Rate System,an Increase in the Demand for Japanese