Question

If the demand for British pounds increases, A) the dollar price of the British pound will increase. B) the dollar price of the British pound will decrease. C) the trade balance between the two nations will be out of equilibrium. D) the exchange rate between dollars and pounds will be out of equilibrium.

Answer 1

The correct answer is A.

The exchange rate between two currencies, in this case dollars and pounds, is the amount of one currency (dollars) that needs to be paid in order to get one unit of the other currency (pounds, £).

If US currency holders demand pounds, the exchange rate $/£ will rise because consumers are willing to sell their dollars to buy pounds. The pound has appreciated, it means that now more dollars need to be paid in order to get 1£.

Answer 2

It's either A or B I think. Might be B