Use the Following to Answer Questions

question 53

Multiple Choice

Use the following to answer questions .
Exhibit: Exchange Rates
-(Exhibit: Exchange Rates) Which of the following is true of the equilibrium quantity, Q₁?

• A) It represents the quantity of U.S. dollars demanded by foreigners who purchase U.S. goods and services and U.S. assets.
• B) It represents the quantity of U.S. dollars supplied by the Federal Reserve.
• C) It represents the quantity of U.S. dollars supplied and demanded by foreign nationals.
• D) It represents the total amount foreigners spent in the United States during a given period.

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Definitions:

Foreign Exchange Rate Risk

The potential for investors to experience losses due to changes in the exchange rates between currencies.

Spot Rate

The current market price at which a particular asset can be bought or sold for immediate delivery.

Forward Rate

The agreed-upon price for a financial transaction, such as the exchange of currency, to take place at a future date, used to hedge against market volatility.

Eurobonds

International bonds issued in a currency not native to the country where it is issued.