In 2010, Eyjafjallajokull (a volcano in Iceland) erupted and created a dangerous ash cloud over Northern Europe. This led to major travel disruptions, and tourism to Iceland immediately fell by 30%. This included American tourists, some of whom cancelled their plans to visit Iceland. Which of the following would have happened in the market for the U.S. dollar?

Question

Quizplus · Accepted Answer

When American tourists cancel their plans to visit Iceland, they no longer need to exchange their U.S. dollars for Icelandic krona. This reduces the amount of U.S. dollars being offered on the foreign exchange market for Icelandic krona, leading to a decrease in the supply of the U.S. dollar.

In 2010, Eyjafjallajokull (A Volcano in Iceland) Erupted and Created