Which of the following would tend to shift the supply of dollars in the foreign-currency exchange market model to the left?
A) The exchange rate rises.
B) The exchange rate falls.
C) The expected rate of return on Canadian assets rises.
D) The expected rate of return on Canadian assets falls.

Question

Quizplus · Accepted Answer

A shift to the left in the supply of dollars in the foreign-currency exchange market model would occur if investors find Canadian assets more attractive, hence option C is correct. This is because if the expected rate of return on Canadian assets rises, investors would want to hold more Canadian dollars to invest in Canada, thus reducing the supply of U.S. dollars in the foreign exchange market as they exchange their dollars for Canadian dollars.

Which of the Following Would Tend to Shift the Supply