Final answer:
As the dollar exchange rate increases, the quantity of dollars supplied in the foreign exchange market decreases, and the quantity of dollars demanded in the foreign exchange market increases. The correct option is d. increases; decreases.
Step-by-step explanation:
In the foreign exchange market, as the dollar exchange rate increases, the quantity of dollars supplied decreases, and the quantity of dollars demanded increases. This can be explained by the concept of demand and supply in the foreign exchange market.
As the exchange rate increases, it means that the value of the dollar has appreciated, making it more expensive to purchase dollars. This decreases the number of dollars supplied as foreign firms and investors would be less willing to sell their dollars and convert them into their home currency. On the other hand, the demand for dollars increases as U.S. export firms, foreign tourists, and foreign investors find it more attractive to convert their currency into dollars due to the higher exchange rate.
Therefore, the correct answer is d. increases; decreases.
The correct option is d. increases; decreases.