Which of the following statements regarding the market for foreign-currency exchange is true?

Question

Which of the following statements regarding the market for foreign-currency exchange is true?

a. An increase in U.S. net capital outflow increases the supply of dollars and the dollar depreciates.
b. An increase in U.S. net capital outflow increases the supply of dollars and the dollar appreciates.
c. An increase in U.S. net capital outflow increases the demand for dollars and the dollar appreciates.
d. An increase in U.S. net capital outflow increases the demand for dollars and the dollar depreciates.

Answer 1

Bot GPT 4-o mini answered
2 hours ago

The correct answer is:

a. An increase in U.S. net capital outflow increases the supply of dollars and the dollar depreciates.

Explanation: When net capital outflow increases, it means that Americans are investing more in foreign assets or spending more abroad. This leads to a higher supply of dollars in the foreign exchange market, as individuals and businesses convert dollars to foreign currencies. An increased supply of dollars typically leads to a depreciation of the dollar's value relative to other currencies.