Question

Which of the following is true for the equilibrium rate of exchange? *1.There is no excess demand for and supply of foreign exchange2.There is excess demand for, but no excess supply of foreign exchange3.There is no excess supply of, but there is excess demand for foreign exchange4.There is excess demand for and excess supply of foreign exchange​

Answer 1

Answer:

1 and 4 both are correctbecause both follows equilibrium

Answer 2

Answer:

Option (4)  is true for the equilibrium rate of exchange

Explanation:

The equilibrium exchange rate is the long-term rate that corresponds to the world's currencies' Purchasing Power Parity (PPP) when all commodities are traded and the power market is fully efficient. The equilibrium exchange rate is the rate at which the supply and demand for currency are equal.

Therefore ,  the option (4) is correct which is excess demand for and excess supply of foreign exchange .

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