If the Exchange Rate Is Above the Equilibrium Exchange Rate

question 7

Multiple Choice

If the exchange rate is above the equilibrium exchange rate in the foreign exchange market,

• A)a shortage exists, and the exchange rate will rise.
• B)a shortage exists, and the exchange rate will fall.
• C)a surplus exists, and the exchange rate will fall.
• D)exports are cheap, and the demand curve for Canadian dollars will shift rightward.
• E)a surplus exists, and the exchange rate will rise.

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Definitions:

Variable Expenses

Expenses that change in proportion to the activity of a business.

Financial Advantage

A benefit gained in financial terms, which can result from factors such as cost savings, investment returns, or other monetary gains.

Outside Supplier

An external organization that provides goods or services to another company.

Variable Costs

Charges that fluctuate in accordance with the scale of production or total volume produced.