Draw a demand for dollars curve. Label it

D.

Draw a supply of dollars curve. Label it

S.

Draw a point at the equilibrium quantity and equilibrium exchange rate.

Draw an arrow between the D and S curves that indicates a price at which there is a surplus of dollars. Label it.

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Part 1

When there is a surplus of dollars in the foreign exchange market, ______.

A.

the supply of Canadian dollars will increase so the foreign exchange market can move into equilibrium

B.

the forces of supply and demand pull the foreign exchange market into equilibrium

C.

the demand for Canadian dollars will increase so the foreign exchange market can move into equilibrium

D.

prices in Canada will fall relative to prices in the United States