Identify the Correct Statement About Foreign Exchange Markets

question 98

Multiple Choice

Identify the correct statement about foreign exchange markets.

• A)The effect of an increase in the supply of dollars is the same as that of an increase in the supply of foreign currencies.
• B)The effect of an increase in the supply of dollars is the same as that of a decrease in the supply of foreign currencies.
• C)The effect of an increase in the supply of dollars is the same as that of an increase in the demand for dollars.
• D)As the price of a foreign currency decreases relative to the U.S. dollar, foreign products become relatively more expensive to U.S. consumers.
• E)As the price of a foreign currency increases relative to the U.S. dollar, U.S. products will become relatively more expensive to European buyers.

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Definitions:

Average Total Cost

The total cost of production divided by the quantity produced, it measures the average cost per unit of a product.

Competitive Firm

A business that operates in a market with many sellers offering similar or slightly differentiated products, resulting in limited market power for individual firms.

Long Run

A period during which all factors of production and costs can be fully adjusted, allowing for a complete analysis of economic equilibrium and effects.

Expanding Plant

The process of increasing the size or capacity of a manufacturing or production facility.