ECONOMICS
FOREIGN CURRENCY MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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positively slopped from left to right
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negatively slopped from left to right
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rectangular hyperbola curve
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a straight line slopped from left to right
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Detailed explanation-1: -(b) Supply curve: The major component of the supply of foreign currency is the exports of a country’s goods and services. Higher the exchange rate higher will be the export and supply of foreign exchange. Thus, the supply curve of foreign currency is upward sloping.
Detailed explanation-2: -The foreign exchange rate and supply of foreign exchange is positively related and it is upward sloping curve as because the components of supply of foreign exchange rise as foreign exchange rate rises. For example, exports rise as the foreign exchange rate rises.
Detailed explanation-3: -The demand and supply model for currency shows the relationship between quantity demanded and the exchange rate or price for the currency. The demand curve for dollars slopes downward because foreigners demand a greater quantity of dollars as the local currency depreciates in value.
Detailed explanation-4: -The demand curve for foreign currency is downward sloping because a higher exchange rate makes domestic goods more expensive. The supply curve is vertical because the quantity of dollars supplied for net capital outflow is unrelated to the real exchange rate.