In determining the equilibrium exchange rate,the supply curve is upward sloping,representing an increase in supply of the local currency when the price of the local currency increases in the FX markets relative to the foreign currencies.

Question

Quizplus · Accepted Answer

The supply curve for a currency in the foreign exchange market is typically upward sloping because as the price of the currency increases (meaning it takes more of the foreign currency to buy one unit of the local currency), holders of the local currency are more willing to exchange it for foreign currencies. This represents an increase in the supply of the local currency in the foreign exchange markets.

In Determining the Equilibrium Exchange Rate,the Supply Curve Is Upward