Question

The primary determinant of currency exchange rates is the volume of exports and imports.

True

False

Flag this Question

Question 102 pts

The purchase of U.S. real estate from foreign sources would create a supply of a foreign currency.

True

False

Answer 1

1.

Answer: False

The value of domestic currency in terms of foreign currency is called exchange rate. It may fluctuate or remain constant over the periods.

The primary determinant is speculative activities by foreigners. It sets the exchange rate in the short-run. If foreigners speculate that the dollar value would increase in future, they can purchase now dollar-moninated securies in increasing number and can sell those in future when dollar value increases. It makes their earning higher and increases the exchange rate.    

2.

Answer: True

This is the purchase from abroad. Foreigners have to pay the value of real estates in their own currency, which increases the supply of that currency in the US.