Which statement best describes the law of demand as it relates to currency marke

Question

Which statement best describes the law of demand as it relates to currency markets?

a. The law of demand only applies to goods and services, not currency.

b. When the price of a Mexican peso in terms of a U.S. dollar decreases, U.S. consumers demand fewer Mexican pesos because Mexican goods become more expensive to American consumers.

c. When the price of Japanese yen in terms of a U.S. dollar decreases, U.S. consumers demand more Japanese dollars because Japanese goods become more expensive to American consumers.

d. When the price of a Canadian dollar in terms of a U.S. dollar increases, U.S. consumers demand fewer Canadian dollars because Canadian goods become more expensive to American consumers.

e. When the price of an Australian dollar in terms of a U.S. dollar increases, U.S. consumers demand more Australian dollars because Australian goods become less expensive to American consumers.

Explanation / Answer

Option D.
When price of one currency rises in terms of other currency or the home currency depreciates and the foreign currency appreciates, then domestic consumers will demand less of the foreign currency as it has become costlier and the imported goods from the foreign currency will become costlier.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.