Traders operate on the principle that the ______ the value of the nominal exchange rate (E), the ______ it is to purchase foreign currency, and the _____ its return measured in the domestic currency.
A) higher; more expensive; lower
B) higher; less expensive; higher
C) lower; more expensive; higher
D) higher; more expensive; higher

Question

Quizplus · Accepted Answer

The correct answer is A) higher; more expensive; lower because a higher nominal exchange rate means that more of the domestic currency is needed to purchase a unit of foreign currency, making it more expensive to buy foreign currency and resulting in a lower return when measured in the domestic currency.

Traders Operate on the Principle That the ______ the Value