ECONOMICS
TRADE EXCHANGE AND INTERDEPENDENCE
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increased foreign demand for U.S. dollars
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Decreased supply of U.S. dollars
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Increased U.S. demand for foreign currency
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a decrease in the value of foreign currency
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Detailed explanation-1: -The demand for the dollar increases when international parties, such as foreign citizens, foreign central banks, or foreign financial institutions demand more dollars. Demand for the dollar is usually high as it is the world’s reserve currency.
Detailed explanation-2: -The economics of supply and demand dictate that when demand is high, prices rise and the currency appreciates in value. In contrast, if a country imports more than it exports, there is relatively less demand for its currency, so prices should decline. In the case of currency, it depreciates or loses value.
Detailed explanation-3: -The law of demand holds: as the price of a foreign currency increases, the quantity of that currency demanded will decrease. Foreign currencies are supplied by foreign households, firms, and governments that wish to purchase goods, services, or financial assets denominated in the domestic currency.
Detailed explanation-4: -Imports and exports can affect a country’s Gross Domestic Product (GDP), its exchange rate, and its level of inflation and interest rates. This, in turn, can make goods and services more expensive or create jobs and stimulate domestic production.