Question

Consider the market for the British pound sterling (GBP). Note that although the United Kingdom (Great Britain) is an official member of the European Union, it has chosen not to adopt the euro as its official currency. For each of the following, determine whether the situation described is part of the supply, demand, or neither side in the foreign exchange market for GBP.
a. John and Adam are British economists who are going to Washington, D.C. for an economics conference. In the foreign exchange market for GBP, John and Adam are part of .
b. An American pharmaceutical firm buys a smaller competitor based in London. In the foreign exchange market for GBP, the American pharmaceutical firm is part of .
c. Louise, who lives in France, is going on a vacation to Germany. In the foreign exchange market for GBP, Louise is part of .
d. Kamran, who moved to Great Britain from India to work as an engineer, sends some of his paycheck each month to his parents in India. In the foreign exchange market for GBP, Kamran is part of .
e. An economics class from the United States is traveling to Great Britain as part of a study-away program. In the foreign exchange market for GBP, these students are part of .

Answer 1

Answer:

a. supply

b. demand

c. neither supply nor demand

d. supply

e. demand

Explanation:

supply and demand is the relationship between the quantity of a commodity that producers wish to sell at various prices and the quantity that consumers wish to sell.

Here its either you are buying the GBP which is a form of demand or you are selling the GBP which is a form of supply to the market.

Answer 2

Answer:

A. Supply of currency

B. Demand for currency

C. Neither Demand nor Supply

D. Supply of currency

E. Demand for currency

Explanation:

The supply of GBP in this case is simply determined by the domestic demand of the currency from abroad. An example of this can be seen when the United Kingdom want to import cars from say Japan. It is expected that the payment must be done in yen (¥). Hence, to make this possible, pounds (GBP) must be sold (supply).

a. In the first case John and Adam must sell pounds to buy dollars for use in Washington (Supply)

b. In the second case, the American company would have to purchase GBP to operate in London. Hence this is demand for currency.

c. In the third case, France uses the Euro and Germany also uses the Euro, hence there will be no exchange that has anything to do with buying or selling of the UK Pounds and hence it is neither demand nor supply.

d. In the fourth case, the GBP sent, must have to be sold and converted to Indian Rupee for it to be used in India by Kamran's parents, and hence this is known as supply of GBP.

e. Finally, an economics class from United States travelling to Uk would need to purchase GBP with his American dollar and hence this is part of demand for currency as it relates to the foreign exchange market for GBP.