Suppose the market for dollars is in equilibrium, then the expected future exchange rate rises. What effect does this change have on the current exchange rate?
A) It will rise.
B) It will fall.
C) It will remain unchanged.
D) Because both the supply and demand curves shift, the effect on the exchange rate is unpredictable.

Question

Quizplus · Accepted Answer

When the expected future exchange rate rises, investors and speculators are likely to buy more dollars now in anticipation of the dollar's value increasing in the future. This increased demand for dollars in the present will push the current exchange rate up.

Suppose the Market for Dollars Is in Equilibrium, Then the Expected