The citizens of Burginland are convinced that there will never be an improvement in the economic situation there and that there are likely to be widespread defaults on bonds and bank failures. As a result, they want to buy more financial assets from their trading partner, Marthaland. The currency in Burginland is the eagle and the currency in Marthaland is the jean.

What is the effect of the increased demand for Marthaland's financial assets on the real value of each country's currency?

Choose 1 answer:
(A) The Burginland eagle depreciates and the Marthland jean appreciates.
(B) The Burginland eagle appreciates and the Marthland jean appreciates.
(C) The Burginland eagle appreciates and the Marthland jean depreciates.

Question

The citizens of Burginland are convinced that there will never be an improvement in the economic situation there and that there are likely to be widespread defaults on bonds and bank failures. As a result, they want to buy more financial assets from their trading partner, Marthaland. The currency in Burginland is the eagle and the currency in Marthaland is the jean.

What is the effect of the increased demand for Marthaland's financial assets on the real value of each country's currency?

Choose 1 answer:
(A) The Burginland eagle depreciates and the Marthland jean appreciates.
(B) The Burginland eagle appreciates and the Marthland jean appreciates.
(C) The Burginland eagle appreciates and the Marthland jean depreciates.

Accepted Answer

∻Solution∻ ‖ a ⋮ Increased Demand for Financial Assets: When citizens of Burginland increase their demand for financial assets from Marthaland, they need to exchange their currency (eagle) for Marthaland's currency (jean). ‖ ‖ b ⋮ Currency Exchange Impact: The increased demand for the jean leads to an appreciation of the jean because more eagles are being sold to buy jeans. ‖ ‖ c ⋮ Depreciation of Eagle: As more eagles are sold in the foreign exchange market, the supply of eagles increases, leading to a depreciation of the eagle. ‖ ∻Answer∻ ⚹ (A) The Burginland eagle depreciates and the Marthland jean appreciates. ⚹ ∻Key Concept∻ ⚹ Currency Appreciation and Depreciation ⚹ ∻Explanation∻ ⚹ When the demand for a country's financial assets increases, the demand for its currency also increases, leading to its appreciation. Conversely, the currency of the country whose assets are being sold will depreciate due to increased supply in the foreign exchange market. ⚹◊How does an increase in demand for financial assets affect the real value of a country's currency in Microeconomics?⍭ Generate me a similar question◊

Sia