As the expected future exchange rate for dollars increases
A) the demand for U.S. dollars increases.
B) the supply of U.S. dollars decreases.
C) both the demand for U.S. dollars and the supply of U.S. dollars increase
D) Both answers A and B are correct.

Question

Quizplus · Accepted Answer

When the expected future exchange rate for dollars increases, it implies that the dollar is anticipated to be stronger in the future. This makes holding dollars more attractive, increasing demand. Simultaneously, individuals and businesses are less inclined to exchange their dollars for other currencies, effectively decreasing the supply of dollars in the foreign exchange market.

As the Expected Future Exchange Rate for Dollars Increases