The diagram shows a freely floating foreign exchange market in the United Kingdom (UK) for the demand and supply of pounds sterling (£) in exchange for United States (US) dollars ($).
What could cause the downward shift shown?
1 )
UK interest rate falls below US interest rate.
2 )
The demand for UK exports is price-elastic and prices increase.
The demand for US exports is price-elastic and prices decrease.
4 )
People believe that sterling will appreciate.
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