Considering that the balance of payments is represented by the formula CA + FA = FX where CA is the current account, FA is the capital and financial account, while FX is the foreign currency reserve.

It is known that domestic trade requires domestic currency (DC) while foreign trade requires foreign currency (FX), so the money supply (M) is given by the formula M = m (DC+FX) where m refers to the tendency to hold money.

It is also known that the demand for money (MD) is represented by the formula MD = kPy where k is the tendency to hold money, while P and y refer to national prices and income, respectively.

Based on the above information, discuss how an increase in the domestic money supply (DC) will affect:

(a). international trade

(b). foreign exchange rate