If, at the current exchange rate between the Canadian dollar and the South African rand of 6.92 rand per Canadian dollar, the rand is "undervalued," how do you expect demand and supply in the foreign exchange markets to respond?

Question

Quizplus · Accepted Answer

If the South African rand is considered undervalued, it means that it is cheaper than it perhaps should be. This makes South African goods and services cheaper for foreign buyers, increasing the demand for the rand as more people want to buy it to pay for those goods and services. Simultaneously, because the rand is cheap, people holding Canadian dollars might find it attractive to exchange them for rands to take advantage of the favorable rate, thus increasing the supply of Canadian dollars in the market.

If, at the Current Exchange Rate Between the Canadian Dollar