When the price of foreign currency (i.e the exchange rate) is below the equilibrium level ?
Correct answer: A. an excess demand for that currency exists in the foreign exchange market
- A. an excess demand for that currency exists in the foreign exchange market
- B. an excess supply of the currency exists in the foreign exchange market
- C. the demand for foreign exchange shifts outward to the right
- D. the demand for foreign exchange shifts backward to the left
Explanation
When the exchange-rate price is below equilibrium, buyers want more foreign currency than sellers offer. This creates an excess demand, which pushes the currency's price upward toward equilibrium.
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