The demand for dollars in the foreign exchange market
A)will increase if U.S. incomes increase.
B)comes from the demand by U.S. residents for foreign goods, services, and securities.
C)will fall if foreign incomes increase.
D)reflects the demand by foreign residents for U.S. goods, services, and financial claims.

Question

Quizplus · Accepted Answer

The demand for dollars in the foreign exchange market reflects the demand by foreign residents for U.S. goods, services, and financial claims. As foreign residents need to purchase dollars in order to buy American goods or invest in American securities, an increase in demand for these goods or securities will lead to an increase in demand for dollars. Conversely, if foreign incomes increase, their demand for U.S. goods and services may decrease, leading to a decrease in demand for dollars in the foreign exchange market.

The Demand for Dollars in the Foreign Exchange Market