Introduction to the foreign-currency exchange market Why does the demand curve for dollars in the foreign-currency exchange market slope downward in an open economy?
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A depreciation in the domedic currency causes exports to lail and imports to rise and, therefore, net exports to fail. A depreciation of the dollar reduces the quantity of dollars demanded in the market for foreigh-currency exchange. Net capital outflow equals net exports. When the value of the domestic currency depreclates, domestic goods become less expensive relative to foreign goods, making domestic goods more attractive to domestic and foreign consumers.