Question

in an open economy, what is the source of demand for dollars in the foreign-currency exchange market?

Answer 1

The imports is the source of demand for dollars in the foreign currency exchange market in an open economy.

Given that there is an open economy and there is need of foreign currency exchange market.

We are required to tell what is the source of the demand for dollars in the foreign currency exchange market.

The foreign exchange market is basically an over-the-counter marketplace that determines the exchange rate for global currencies.

An open economy is basically a type of economy where not only domestic factors but also entities in other countries engage in trade of products.

The amount of dollars are needed for the payment of the imports made by the public or government. In this way demand of dollars increases.

Hence the imports is the source of demand for dollars in the foreign currency exchange market in an open economy.

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