Foreign Quantitative Easing and Exchange Rates

Question

A foreign central bank initiates quantitative easing, increasing the supply of its own currency. How does this indirectly affect the FX market for the domestic currency shown above?

Accepted Answer

The domestic currency appreciates, as the relative scarcity of foreign currency leads to a leftward shift in its supply, lowering the exchange rate.

Answer

There is no effect on the domestic currency, as foreign QE only impacts the foreign side of the FX market.

Answer

The domestic currency depreciates owing to a rightward shift in the supply of foreign currency.

Answer

The domestic currency depreciates because the increased foreign currency supply shifts the demand curve for foreign currency rightward.