Question

Draw a demand for dollars curve. Label it D. Draw a supply of dollars curve. Label it S. Draw a point at the equilibrium quantity and equilibrium exchange rate. Draw an arrow between the D and S curves that indicates a price at which there is a surplus of dollars. Label it. What happens in the foreign exchange market when a surplus of dollars​ exists? When there is a surplus of dollars in the foreign exchange​ market, _____

Answer 1

When there is a surplus of dollars in the foreign exchange​ market, it indicates that foreign investors are not as interested in holding dollars.

Step-by-step explanation:

In the foreign exchange market, when there is a surplus of dollars, it means that the supply of dollars exceeds the demand for dollars at a given exchange rate. This surplus of dollars results in a decrease in the exchange rate between the dollar and other currencies.

For example, if the original equilibrium exchange rate was 10 pesos per dollar, a surplus of dollars might cause the exchange rate to decrease to 8 pesos per dollar.

When there is a surplus of dollars in the foreign exchange market, it indicates that foreign investors are not as interested in holding dollars, which can be caused by factors such as a decrease in confidence in the US economy or an increase in the attractiveness of other currencies.

Answer 2

The forces of demand and supply in the market will pull the foreign exchange market into equilibrium.

Step-by-step explanation:

When there is a surplus of dollar in the foreign exchange market the forces of demand and supply will pull the foreign exchange market into equilibrium. i.e. The exchange rate will be reduced to bring the exchange market to equilibrium. without change in demand or supply.

attached below is the required graph.