The law of demand for dollars in the foreign exchange market means that the
A) lower the exchange rate, the greater the quantity of dollars demanded.
B) higher the exchange rate, the smaller the quantity of dollars demanded.
C) lower the exchange rate, the smaller the quantity of U.S. exports demanded.
D) Both answers A and B are correct.

Question

Quizplus · Accepted Answer

The law of demand for dollars in the foreign exchange market indicates that as the exchange rate (the price of dollars in terms of foreign currency) decreases, more dollars are demanded (A), and as the exchange rate increases, fewer dollars are demanded (B). Both A and B correctly describe this inverse relationship.

The Law of Demand for Dollars in the Foreign Exchange