Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and supply of marks are depicted by D? and S? respectively.
Figure 15.1. The Market for the Swiss Franc

-Refer to Figure 15.1.Suppose the United States decreases investment spending in Switzerland,thus reducing the demand for francs from D? to D?.Under a floating exchange rate system,the new equilibrium exchange rate would be:
A) $0.40 per franc
B) $0.50 per franc
C) $0.60 per franc
D) $0.70 per franc

Question

Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and supply of marks are depicted by D? and S? respectively.
Figure 15.1. The Market for the Swiss Franc
 
-Refer to Figure 15.1.Suppose the United States decreases investment spending in Switzerland,thus reducing the demand for francs from D? to D?.Under a floating exchange rate system,the new equilibrium exchange rate would be:
A) $0.40 per franc 
B) $0.50 per franc 
C) $0.60 per franc 
D) $0.70 per franc

Quizplus · Accepted Answer

The decrease in investment spending in Switzerland reduces the demand for francs, shifting the demand curve to the left. This leads to a depreciation of the franc, resulting in a lower equilibrium exchange rate.

Figure 151 Shows the Market for the Swiss Franc