Currency traders expect the value of the Canadian dollar to rise.What effect will this have on the demand for Canadian dollars and the supply of Canadian dollars in the foreign exchange market?
A)Demand for Canadian dollars will increase, supply of Canadian dollars will decrease, and the Canadian dollar will appreciate.
B)Demand for Canadian dollars will increase, supply of Canadian dollars will increase, and the Canadian dollar may appreciate or depreciate.
C)Demand for Canadian dollars will decrease, supply of Canadian dollars will increase, and the Canadian dollar will depreciate.
D)Demand for Canadian dollars will decrease, supply of Canadian dollars will decrease, and the Canadian dollar may appreciate or depreciate.
E)Demand for Canadian dollars will decrease, the supply of Canadian dollars will decrease, and the Canadian dollar will appreciate.

Question

Quizplus · Accepted Answer

When traders expect the value of the Canadian dollar to rise, they will demand more Canadian dollars, causing an increase in demand for Canadian dollars. On the other hand, the supply of Canadian dollars would decrease as traders hold onto their Canadian dollars in hopes of capitalizing on the predicted increase in value. As a result, the Canadian dollar will appreciate.

Currency Traders Expect the Value of the Canadian Dollar to Rise.What