Figure 15-2 -Refer to Figure 15-2. Suppose the Exchange Rate Between the Rate

question 162

Multiple Choice

Figure 15-2
-Refer to Figure 15-2. Suppose the exchange rate between the dollar and the British pound
Is fixed at £0.3 per dollar. Now suppose U.S. residents choose to purchase more British goods and services. What happens in the foreign exchange market?

• A) The demand curve for dollars increases, and the equilibrium exchange rate for the dollar (in terms of pounds) rises.
• B) The supply curve for dollars increases, and the equilibrium exchange rate for the dollar (in terms of pounds) falls.
• C) The demand curve for dollars decreases, and the equilibrium exchange rate for the dollar (in terms of pounds) falls.
• D) The supply curve for dollars decreases, and the equilibrium exchange rate for the dollar (in terms of pounds) rises.

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Definitions:

Demand

The quantity of a good or service that consumers are willing and able to purchase at a given price over a specified period.

Elastic

Describes a situation where the quantity demanded or supplied of a good is sensitive to changes in its price.

Current Margin

The existing difference between a company's sales and its variable costs, indicating the portion of sales revenue that covers fixed costs and profits.

Desired Margin

The target profit margin a company aims for in pricing its products or services.