Explanation The export of goods and services and the import of the goods and services between different countries form international trade. When the US sells a good to another country, it is an export and when it is the purchase of a commodity or service from the other country by the US, it is an import. While exporting, the purchasing country should pay the US; the importing countries pay the currency equivalent to the domestic currency for the imports. Thus, the exporter receives the importer’s currency in exchange for the trade, which can be used to pay for the imports from them. Thus, it is said that exports earn supply of foreign currencies that can be used by people to make imports. The exchange of the goods and services takes place in normal markets. The trading of the currencies cannot be done in such markets and there is an over-the-counter market for the purpose of the sale of such currencies. The different currencies are bought and sold here in this market. They are known as the foreign exchange markets. The market determines the exchange rate of the economy. Option (a): The air-lines are produced in France, which is a member of the European Union. When the US makes a demand for the air-lines made in France, it will lead to increased imports of air-lines to the US. Thus, the US has to pay France in their currency. Since France is a member of the European Union, they use the Euro as it is their international currency. The increase in the exports of air-lines by France will lead to the increase in the demand for the Euro in the foreign exchange market. Option (b): The auto manufacturer is based in Germany, which is a member of the European Union (which uses Euro as their official currency). When the firm makes a plant in the place in the US, the firm has to purchase the US dollar (or supply the Euro) in order to get the required land, machinery, as well as the other factors of production from the US. As a result, the decision will lead to an increase in the supply of Euro in the exchange market. Option (c): Paris is a place which is located in France. Thus, when the student wants to stay in France, she has to keep the currency of France in order to make her day-to-day transactions. For this purpose, she has to get the Euro from the exchange market by providing dollars there...

The demand for and supply of Euros.

Macroeconomics

21st Edition

ISBN: 9781259915673

Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.

Publisher: McGraw-Hill Education

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6) Indicate whether each of the following creates a demand for or a supply of European euros in foreign exchange markets: a. U.S. airline firm purchases several Airbus planes assembles in France b. A German automobile firm decides to build an assembly plant in South Carolina c. A U. S. college student decides to spend a year studying at the Sorbonne in Paris d. An Italian manufacturer ships machinery from one Italian port to another on an Liberian freighter e. It is widely expected that the euro will depreciate in the near future

The current exchange rate is £1.00 = $2.00. Compute the correct balances in Bank A's correspondent account(s) with Bank B if a currency trader employed at Bank A buys £45,000 from a currency trader at Bank B for $90,000 using its correspondent relationship with Bank B: O a. Bank A's pound-denominated account at B will rise by £45,000. O b. Bank B's dollar-denominated account at A will fall by $90,000. O c. Bank B's pound-denominated account at A will rise by £45,000. O d. Bank A's dollar-denominated account at B will rise by $90,000.

Suppose the Australian dollar floats against the US dollar and the demand for Australian dollars in the foreign exchange market is given by Q = 100 - 50E where Q denotes the quantity of AUD and E denotes the nominal exchange rate expressed in USD per AUD. The supply of Australian dollars is given by Q = 20 + 50E. What is the equilibrium nominal exchange rate? O 0.80 O 1.00 O 1.20 O 1.50

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The demand for and supply of Euros.

Solution Summary: The author explains that exports earn supply of foreign currencies that can be used by people to make imports. The foreign exchange markets determine the exchange rate of the economy.

The demand for and supply of Euros.

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