Question

Suppose that most market participants believe that the that the price of dollars will decrease. How will they react?

Question 14 options:

Those that demand dollars immediately demand more dollars and those that supply dollars will immediately more fewer dollars


Those that demand dollars immediately demand more rands and those that supply dollars will immediately supply fewer rands


Those that demand dollars immediately demand fewer rands and those that supply dollars will immediately supply more rands


Those that demand dollars immediately demand more dollars and those that supply dollars will immediately supply fewer dollars

Answer 1

If most market participants believe that the price of dollars will decrease, they will adjust their behavior in anticipation of the dollar's future decline.

1. Those who demand dollars (i.e., those wanting to buy dollars) would be inclined to demand fewer dollars now, expecting that they can purchase dollars at a lower price in the future.
2. Those who supply dollars (i.e., those wanting to sell dollars) would be inclined to supply more dollars now in order to take advantage of the current price before it decreases.

Given these dynamics, the correct option would be:

**Those that demand dollars immediately demand fewer rands and those that supply dollars will immediately supply more rands.**

This reflects the behavior of market participants expecting a decrease in value.