If for some reason Americans wished to purchase more foreign assets, then other things the same
A) both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency exchange would fall.
B) both the real exchange rate and the quantity of dollars exchanged in the market for foreign-currency would rise.
C) the real exchange rate would rise and the quantity of dollars exchanged in the market for foreign-currency would fall.
D) the real exchange rate would fall and the quantity of dollars exchanged in the market for foreign-currency would rise.

Question

Quizplus · Accepted Answer

When Americans wish to purchase more foreign assets, they will need to exchange their dollars for the foreign currency needed to make the purchases. This increase in demand for foreign currency will lead to an increase in the market for foreign-currency exchange, which will cause the quantity of dollars exchanged in this market to rise. However, this increased demand for foreign currency will also cause the value of the dollar to fall relative to the foreign currency, which means that the real exchange rate will fall. Therefore, the correct answer is D.

If for Some Reason Americans Wished to Purchase More Foreign