Question 3 1 pts The following two fgures depict the demand and supply of U.S. d

Question

Question 3 1 pts The following two fgures depict the demand and supply of U.S. dollars and the demand and supply of British pounds in the foreign currency exchange market. Use these figures to answer the following questions Price (British pounds per U.S. dollar) £1.4t- £1.2 1.8 (trillions of U.S. dollars) Price (U.S. dollar per British pound) 2 1.5 Quantity (trillions of British pounds) Assume that the same event caused demand for U.S. dollars to decrease and demand for British pounds to increase and that both of these graphs describe that event. Approximately what is ? $0.50 $0.71 $0.83 $1.20 O $140

Explanation / Answer

The first figure is drawn with British pound as quote currency realted to U.S dollar . But the second graph is drawn with U.S dollar as quote currency realted to British pound.
Now, in the first graph we can see that, decrease in demand for U.S dollar leads to a leftward shift of Demand Curve from D1 to D2,which further decrease the Price of British Pound per U.S dollar from £1.4 to £1.2.
Now, in the second graph, the increase in demand for British Pound leads to a rightward shift of Demad curve from D1 to D2. Now here, the price of U.S dollar per British pound increase form Y1 to Y2. So. it is cleary visible, the price is increased fro Y1=$1.20 to Y2=$1.40. The demand for U.S dollar increased its exchange rate. Here, U.S dollar is depreciated in related to British Pound.

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