Currency traders expect the dollar to depreciate.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 depreciate,and the change in the equilibrium quantity of dollars exchanged cannot be determined.

Question

Quizplus · Accepted Answer

When currency traders expect the dollar to depreciate, it leads to a decrease in demand for dollars and an increase in supply as traders sell off dollars in anticipation of its loss in value. This will cause the dollar to depreciate. However, the impact on the equilibrium quantity of dollars exchanged is uncertain without more information about the shifts in demand and supply curves.

Currency Traders Expect the Dollar to Depreciate