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

Question

Quizplus · Accepted Answer

When currency traders expect the value of the dollar to rise, they will demand more dollars in order to invest in US assets, causing an increase in demand for dollars. At the same time, the supply of dollars will decrease as currency traders will hold onto their dollars in anticipation of their value increasing, reducing the amount of dollars available in the market. Therefore, choice A - Demand for dollars will increase, and the supply of dollars will decrease - is the best choice.

Currency Traders Expect the Value of the Dollar to Rise