Other things equal, under a floating exchange rate system, an increase in U.S.imports of Japanese goods will cause a demand for Japanese yen to
A) increase, inducing a depreciation in the yen.
B) decrease, inducing a depreciation in the yen.
C) increase, inducing an appreciation in the yen.
D) decrease, inducing an appreciation in the yen.

Question

Quizplus · Accepted Answer

When U.S. imports of Japanese goods increase, there is a higher demand for Japanese yen to pay for these goods. This increased demand for yen tends to cause the yen to appreciate in value relative to other currencies, not depreciate.

Other Things Equal, Under a Floating Exchange Rate System, an Increase