Hamsterville is a tourist destination for Canadian citizens. The currency of Hamsterville is the Hamsterville snark ( $S N$ ), and the currency of Canada is the Canadian dollar $(C A D \$)$.

If tourism to Hamsterville increases, what will happen in the foreign exchange market for the $S N$ and the exchange rate for the $S N$ (in terms of the Canadian dollar)?

Choose 1 answer:
(A) Demand for the $S N$ increases; $S N$ depreciates
(B) The supply of the $S N$ increases, $S N$ appreciates
(C) Demand for the $S N$ increases; $S N$ appreciates
(D) Demand for the $S N$ decreases; no impact on the exchange rate
(E) The supply of the $S N$ increases; $S N$ depreciates

Question

Hamsterville is a tourist destination for Canadian citizens. The currency of Hamsterville is the Hamsterville snark ( $S N$ ), and the currency of Canada is the Canadian dollar $(C A D \$)$.

If tourism to Hamsterville increases, what will happen in the foreign exchange market for the $S N$ and the exchange rate for the $S N$ (in terms of the Canadian dollar)?

Choose 1 answer:
(A) Demand for the $S N$ increases; $S N$ depreciates
(B) The supply of the $S N$ increases, $S N$ appreciates
(C) Demand for the $S N$ increases; $S N$ appreciates
(D) Demand for the $S N$ decreases; no impact on the exchange rate
(E) The supply of the $S N$ increases; $S N$ depreciates

Accepted Answer

***C*** ∻Key Concept∻ ⚹Exchange Rate Determination⚹ ∻Explanation∻ ⚹When tourism to Hamsterville increases, more Canadian citizens need Hamsterville snarks (SN) to pay for goods and services in Hamsterville, leading to an increased demand for SN. According to the law of demand and supply, if the demand for a currency increases while the supply remains constant, the value of the currency will appreciate relative to other currencies. Therefore, the SN will appreciate against the CAD.⚹◊How does an increase in tourism to Hamsterville impact the demand for the Hamsterville snark ($SN$) in the foreign exchange market?⍭ Generate me a similar question◊

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