Question

Supply and demand in the foreign exchange market determines ___________.

A.the exchange rate of two currencies
B.how much of one currency it takes to purchase one unit of another currency
C.whether to adopt another country's currency as the main currency in a country
D. the rate of return on owning foreign denominated assets

Answer 1

Supply and demand in the foreign exchange market determine the exchange rate of two currencies, influenced by economic factors and the actions of market participants like investors and tourists. Option a is the answer.

Step-by-step explanation:

Supply and demand in the foreign exchange market determines the exchange rate of two currencies. This is due to the interaction of buyers and sellers in the market, who negotiate the value of one currency against another based on their respective supply and demand. Factors influencing this include investments, interest rates, and economic conditions. For instance, when the demand for a currency rises or its supply decreases due to higher rates of return in its country, the currency tends to appreciate. Conversely, lower rates of return can cause a currency to depreciate. Market participants such as exporters, importers, tourists, investors, and speculators all play a role in this dynamic and constantly shifting marketplace.