Exchange Rate Expectations May Play an Important Role in the Determination

Multiple Choice

Exchange rate expectations may play an important role in the determination of an equilibrium exchange rate.Given that a very high percentage of turnover in the Australian FX market is not associated with payments for imports and exports,what would you expect to happen if speculators believed that the AUD was about to depreciate?

A) Funds would be moved offshore in anticipation of the expected depreciation.
B) There would be increased demand for the AUD as transactions are brought forward before the expected depreciation occurs.
C) The AUD supply curve would move to the left, reflecting the reduced supply of AUD.
D) All of the given answers are correct.