Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

Question

Social Studies

Gloria Sweeney

15 August, 07:42

Assume that Japan and the United States are engaged in a system of flexible exchange rates. If more people in the United States decide to purchase Japanese cars, what effect will this have on the market for yen?

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Answers (1)

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Armando Watson · Answer 1

The price of the yen will increase.

Explanation:

A flexible (or floating) exchange rate is when the price is determined by the market.

In our example, US citizens are buying Japanese cars, or in other words, they are converting their dollars into yens. The increase in the demand for the yen will cause a rise in its price, and therefore, the dollar will cause a drop in price.