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WAEC Economics 2003 Question 39

Question 39

Balance of Payments and Exchange Rates

When the demand for foreign exchange exceeds its supply, the value of the domestic currency

  1. A.appreciates
  2. B.depreciates
  3. C.inflates
  4. D.expands.
Show the answer and explanation

Answer: B (depreciates)

Explanation

Excess demand for foreign currency raises its price, so the domestic currency loses value (depreciates).