AP Macroeconomics Flashcards: The Foreign Exchange Market
Written by AP Content Team, Verified for 2026 AP Exams, Last updated: May 2026
Review key ideas with interactive flashcards. This set includes 11 cards to help you master important concepts.
Describe the relationship between the exchange rate and the quantity of a currency demanded.
There is an inverse relationship between the exchange rate and the quantity demanded of a currency.
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Describe the relationship between the exchange rate and the quantity of a currency demanded.
There is an inverse relationship between the exchange rate and the quantity demanded of a currency.
Describe the relationship between the exchange rate and the quantity of a currency supplied.
There is a positive relationship between the exchange rate and the quantity supplied of a currency.
What is the result of a disequilibrium exchange rate?
Disequilibrium exchange rates create surpluses and shortages in the foreign exchange market.
If the exchange rate for the Euro is currently above equilibrium, what situation exists in the market?
An exchange rate above equilibrium creates a surplus, as the quantity supplied of the currency will be greater than the quantity demanded.
How does the foreign exchange market correct a disequilibrium?
When a disequilibrium exists, market forces automatically drive exchange rates back toward equilibrium.
What is the demand for a currency in a foreign exchange market?
The demand for a currency arises from the demand for the country’s goods, services, and financial assets.
How is equilibrium achieved in the foreign exchange market?
In the foreign exchange market, equilibrium is achieved when the exchange rate adjusts to the point where the quantity demanded and the quantity supplied of the currency are equal.
Define the foreign exchange market.
The foreign exchange market is a market where currencies are traded and exchange rates are determined by the interaction of supply and demand.
What creates the supply of a currency in a foreign exchange market?
The supply of a currency in a foreign exchange market arises from its holders making payments in other currencies.
What is the equilibrium exchange rate?
The equilibrium exchange rate is the rate at which the quantities demanded and supplied of a currency are equal.
If the exchange rate for the Japanese Yen is below equilibrium, what situation exists in the market?
An exchange rate below equilibrium creates a shortage, as the quantity demanded of the currency will be greater than the quantity supplied.