Case Interview Prep

Answer: C - Equilibrium exchange rate occurs when quantity supplied equals quantity demanded of a foreign currency at a specific local price.
Key Takeaway: Currency in a market is valued at a higher price when the demand for it exceeds the supply available. When an equilibrium exchange rate is achieved, quantity supplied and quantity demanded of a foreign currency are equal at a specific local price. For example, the US dollar is in an equilibrium exchange rate if the quantity requested and quantity available are equal at an exchange rate of 0.75Euros.