The amount of dollars demanded in the market for foreign-currency exchange at a given real exchange rate increases if
A)either U.S.imports or exports increase.
B)either U.S.imports or exports decrease.
C)either U.S.imports increase or U.S.exports decrease.
D)either U.S.imports decrease or U.S.exports increase.

Question

Quizplus · Accepted Answer

The demand for dollars in the foreign exchange market increases when U.S. exports increase because foreign buyers need dollars to pay for U.S. goods. Similarly, when U.S. imports decrease, fewer dollars are supplied to the foreign exchange market, effectively increasing the demand for dollars.

The Amount of Dollars Demanded in the Market for Foreign-Currency