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Question
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Posted 10 months ago
Which of the following would increase the demand in the foreign exchange market for the U.S. dollar?
Choose 1 answer:
(A) Japanese residents want to buy more goods exported from the U.S.
(B) Japanese businesses decide to use the accounting services from the United Kingdom instead of the U.S.
(C) Americans want to buy more cars from Japan
(D) Japanese residents start to view U.S. assets as riskier
(E) U.S. residents want to buy more goods exported from Japan
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
Identify the scenario that would lead to an increase in demand for the U.S. dollar in the foreign exchange market
step 2
Analyze each option to see which one implies that more U.S. dollars will be needed to complete transactions
step 3
Option (A) Japanese residents want to buy more goods exported from the U.S. implies that Japanese residents will need to exchange their currency for U.S. dollars to pay for these goods, increasing demand for the U.S. dollar
step 4
Options (B), (C), (D), and (E) do not imply an increased demand for U.S. dollars. In fact, some suggest an increased supply or decreased demand
Answer
A
Key Concept
Demand and Supply in Foreign Exchange Market
Explanation
When residents of a country want to buy more goods from another country, they must obtain that country's currency, increasing demand for that currency in the foreign exchange market.
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