When the exchange rate falls, in the foreign exchange market the
A) quantity demanded of the currency increases.
B) demand for the currency increases.
C) quantity demanded of the currency decreases.
D) demand for the currency decreases.

Question

Quizplus · Accepted Answer

When the exchange rate falls, it means that the currency has become cheaper relative to other currencies. This typically leads to an increase in the quantity demanded of the cheaper currency, as it is now more affordable to buy with foreign currencies. Demand refers to the relationship between price and quantity demanded at all prices, whereas quantity demanded refers to the amount desired at a specific price.

When the Exchange Rate Falls, in the Foreign Exchange Market