The graph shows the demand for and supply of dollars. At ₹90 per dollar, the market has A downward-sloping demand curve for dollars (D$) and an upward-sloping supply curve of dollars (S$). They cross at E, where the exchange rate is ₹80 per dollar and $40 billion is traded.

The graph shows the demand for and supply…

The graph shows the demand for and supply of dollars.

Question 18

MediumOriginal question

The graph shows the demand for and supply of dollars. At ₹90 per dollar, the market has

A downward-sloping demand curve for dollars (D$) and an upward-sloping supply curve of dollars (S$). They cross at E, where the exchange rate is ₹80 per dollar and $40 billion is traded.

an excess demand for dollars, so the rate risesCorrect answerYour answerequilibriumCorrect answerYour answeran excess supply of dollars, so the rate fallsCorrect answerYour answerno supply of dollarsCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer C

Correct answer: C

Above the equilibrium rate of ₹80, S$ lies to the right of D$: more dollars are offered than wanted.
Sellers cut the price of dollars until the rate returns to ₹80.

Concept: Above equilibrium
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsDemand for and supply of foreign exchange

Practise this chapter →

Ten questions from Foreign Exchange Rate, at your own pace.

Practise this chapter →

Ten questions from Foreign Exchange Rate, at your own pace.

The graph shows the demand for and supply of dollars.

Question 18

Explanation