If people in Britain increase their demand for French francs to buy more French textiles, assuming all other factors remain constant, what will happen to the pound's exchange rate against the French franc?

Multiple choice question for Macroeconomic Issues and Analysis. Select an option, then review the explanation below.

Explanation

When British residents seek more French francs to purchase French goods, the demand for francs rises relative to pounds. This increased demand causes the pound to depreciate against the franc, leading to a fall in the pound's value compared to the franc.

Practice related questions from the same subject.

1.Which of the following is NOT considered an advantage of the single market?
2.Within the European Exchange Rate Mechanism (ERM), each member country maintained a fixed exchange rate, and together the group ________ in relation to other countries worldwide?
3.In a country with a floating exchange rate system, what is the likely effect on its currency if its inflation rate exceeds that of its trading partners?
4.In a floating exchange rate system, how do expectations of rising interest rates typically affect the currency's exchange rate?
5.How does a fixed exchange rate combined with full capital mobility affect the effectiveness of monetary policy?

If people in Britain increase their demand for French francs to buy more French textiles, assuming all other factors remain constant, what will happen to the pound's exchange rate against the French franc?

Explanation

More Macroeconomic Issues and Analysis MCQs