An Increase in the Demand for Dollars on the Foreign

question 102

Multiple Choice

An increase in the demand for dollars on the foreign exchange market,all else equal,will result in:

• A)appreciation of the U.S. dollar and depreciation of the foreign currency.
• B)appreciation of the U.S. dollar and appreciation of the foreign currency.
• C)depreciation of the U.S. dollar and depreciation of the foreign currency.
• D)depreciation of the U.S. dollar and appreciation of the foreign currency.

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Definitions:

Real Interest Rate

The interest rate that has been adjusted for inflation, reflecting the true cost of borrowing or real yield on investment.

Inflation Rate

How quickly the average cost of goods and services goes up, resulting in a drop in the ability to purchase.

Nominal Interest Rate

The interest rate before adjustments for inflation, representing the face value of interest payments on loans or investments.

Fisher Effect

The one-for-one adjustment of the nominal interest rate to the inflation rate