The exchange rate of a particular foreign currency changes as the supply and demand conditions in that country or its trading partners change. Such shifts may occur because of changes in tastes, technological improvements, weather, political upheavals, war, and so on. A poor harvest in one country will increase its demand for agricultural products from other countries and, unless offset by a reduction in import demand in some other product or an increase in its exports, will cause its exchange rate to decline in terms of the currencies of crop-exporting countries. Likewise, a technological improvement reducing the domestic cost of production of a good may increase the quantity of that goods demanded by foreign as well as domestic markets. Unless export of some other product decline or imports climb by the same amount, the domestic exchange rate will increase in terms of foreign currencies.
　　 1. Exchange rate changes according to supply and demand.
　　 A. Right
　　 B. Wrong
　　 C. Doesn’t say
　　 2. When we spend more than we earn, then the exchange rate of local currency will appreciate.
　　 A. Right
　　 B. Wrong
　　 C. Doesn’t say
　　 3. One country needs foreign currencies because it has to pay bills for imports or makes financial investments in foreign countries.
　　 A. Right
　　 B. Wrong
　　 C. Doesn’t say

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