On a Graph of the Foreign Exchange Market for U

question 108

Multiple Choice

On a graph of the foreign exchange market for U.S. dollars, with the horizontal axis measuring the quantity of dollars available for foreign exchange and the vertical axis measuring the exchange rate in euros per dollar, as the dollar appreciates against the euro, the _____ to the foreign exchange market would _____.

• A) quantity of dollars supplied; decrease
• B) supply of dollars; increase
• C) supply of dollars; decrease
• D) quantity of dollars supplied; increase

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Definitions:

CAPM

Capital Asset Pricing Model, a financial model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Marginal Price

This is the cost of producing one additional unit of a good or service.

Zero-Beta Security

A financial instrument whose returns are not correlated with those of the market, meaning it has a beta of zero, thus not contributing to portfolio volatility.

Expected Return

The probability-weighted average of the possible outcomes.