Question

The purchase of U.S. goods and services by foreigners A. requires the purchase of dollar-denominated bonds. B. increases the demand for U.S. dollars. C. increases the demand for foreign currencies. D. requires the purchase of U.S. financial assets as collateral.

Answer 1

Answer:

B. increases the demand for U.S. dollars.

Explanation:

Foreigners buying US goods and services will need the US dollar to complete the transactions. For them to acquire the US dollar, they will have to exchange their local currencies with the dollar. In other words, they will use their domestic currencies to buy the US dollar.

Foreign exchange is the term used to describe transactions involving buying and selling of currencies.

As foreigners buy US goods and services, they will cause the demand for the US dollar to rise. In the foreign exchange market, currencies are the commodities. If the US dollar is ordered more, its demand will increase.  Like other goods, an increase in demand will lead to an increase in price. If foreigners demand more of US goods and services, the US dollar will appreciate in value.