Which of the following is a true statement about equilibrium in the foreign exchange market?

Question

Quizplus · Accepted Answer

Equilibrium in the foreign exchange market occurs when the expected return on domestic assets is equal to the expected return on foreign assets. This means that there is no incentive for investors to either buy or sell an asset in a particular currency, leading to a balance of payments and a stable exchange rate. Net exports may or may not be zero, and it is not necessary for foreign investors to purchase the entire supply of domestic assets. Central banks may have an influence on exchange rates, but they do not regularly meet to choose the equilibrium exchange rate.

Which of the Following Is a True Statement About Equilibrium