Currency traders expect the dollar to appreciate.What impact will this have on equilibrium in the foreign exchange market?
A)The dollar will appreciate,and the equilibrium quantity of dollars will decrease.
B)The dollar will depreciate,and the equilibrium quantity of dollars exchanged will decrease.
C)The dollar will appreciate,and the equilibrium quantity of dollars will increase.
D)The dollar will appreciate,and the change in the equilibrium quantity of dollars exchanged cannot be determined.

Question

Quizplus · Accepted Answer

When currency traders expect the dollar to appreciate, it leads to an increase in demand for dollars as investors seek to benefit from the appreciation. This expectation itself can cause the dollar to appreciate. However, the impact on the equilibrium quantity of dollars exchanged is ambiguous without more information about how supply and demand curves shift in response to these expectations.

Currency Traders Expect the Dollar to Appreciate