The Figure Given Below Depicts the Foreign Exchange Market for British

question 121

Multiple Choice

The figure given below depicts the foreign exchange market for British pounds traded for U.S.dollars. Figure 22.2 Refer to Figure 22.2.An increase in the equilibrium quantity of British pounds from 300 to 350 would most likely mean that:

• A)the demand for British pounds has decreased.
• B)the supply of British pounds has decreased.
• C)increased demand for dollars has caused the dollar to depreciate and the pound to appreciate.
• D)increased demand for dollars has caused the dollar to appreciate and the pound to depreciate.
• E)the equilibrium exchange rate is $1.60 per British pound.

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Definitions:

Tail Risk

Risk of extreme events in the far tail of the probability distribution.

Worst-case Scenario

A situation where the most unfavorable conditions lead to the worst possible outcome for a project or investment.

Downside Exposure

The potential loss in value of an investment due to market declines, highlighting the risk in bearish scenarios.

VaR (Value At Risk)

A statistical technique used to measure and quantify the level of financial risk within a firm or investment portfolio over a specific time frame.