Question

Exchange rate (U.S. cents per Canadian dollar) 120 Draw a demand for dollars curve. Label it D. Draw a supply of dollars curve. Label it S. Draw a point at the equilibrium quantity and equilibrium exchange rate. Draw an arrow between the D and S curves that indicates a price at which there is a surplus of dollars. Label it. O O O 1104 When there is a surplus of dollars in the foreign exchange market, _ 1007 O A. the demand for Canadian dollars will increase so the foreign exchange market can move into equilibrium O B. prices in Canada will fall relative to prices in the United States O C. the forces of supply and demand pull the foreign exchange market into equilibrium O D. the supply of Canadian dollars will increase so the foreign exchange market can move into equilibrium 30 40 50 60 70 80 Quantity (billions of Canadian dollars per day) >>> Draw only the objects specified in the question.

Answer 1

Exchange rate (U.S. cents per Canadian dollar) 120 1104 Surplus 100+ 90- Eq. Exchinage Rate 20 80 30 40 50 60 70 Quantity (billions of Canadian dollars per day) >>> Draw only the objects specified in the question.

When there is a surplus(shortage) in the exchange market, the market forces of demand and supply act in such a way such that the market moves towards equilibrium. As the demand for dollars is lower than the supply of dollars, the exchange rate reduces in order to bring the market to equilibrium.

There would be no shifts in demand or supply in order to bring the market to equilibrium.

Ans: C. the forces of supply and demand pull the foreign exchange market into equilibrium