The Graph Shows the Supply and Demand Curves for Dollars

question 122

Multiple Choice

The graph shows the supply and demand curves for dollars in the pound/dollar market. Assume that D₁ and S₁ are the initial demand for and supply of dollars. Now suppose that Great Britain increases its imports of American products. Assuming freely floating exchange rates,

• A)the pound price of dollars will fall to 1/5 pound equals $1.
• B)the pound price of dollars will rise to 1/4 pound equals $1.
• C)the dollar price of pounds will increase to $5 equals 1 pound.
• D)a dollar shortage of MN will result in Britain.

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Definitions:

Incremental Value

The additional value generated by undertaking a specific action or project, compared to not doing so.

Value Per Share

The monetary worth assigned to a single share of stock, based on the company's total valuation divided by the number of outstanding shares.

Equity-Financed

A method of financing in which a company raises capital through the sale of shares, rather than borrowing through debt.

Net Present Value

An evaluation of the profitability of an investment, calculated by subtracting the present value of cash outflows from the present value of cash inflows over a period.