Exam 15: The Foreign Exchange Market

What are some of the long-run determinants of the exchange rate?

When Americans and foreigners expect the return on ________ deposits to be high relative to the return on ________ deposits, there is a higher demand for dollar deposits and a correspondingly lower demand for foreign deposits.

Increased demand for a country's exports causes its currency to depreciate.

As the relative expected return on dollar deposits increases, Americans will want to hold fewer dollar deposits and more foreign deposits.

In the long run, ________ affect the exchange rate.