Question

Indicate whether each of the following creates a demand for or a supply of European euros in foreign exchange markets:

Answer 1

Answer:

See below.

Explanation:

A)

A US purchase of a European product will create demand for Euros as US authorities would have to use euros in the exchange for the airbus, meaning they would have sell US and buy Euros.

B)

The German firm needs to set up in US and thus would need the local currency to conduct its operations in Carolina, they will have to buy USD by selling euros and thus creating a euro supply.

C)

The college student will have to be using Euros and as such would need to exchange dollars for euros, crating a demand.

D)

As the products are shipped aboard a Liberian freighter, they would be paid by giving out euros in the foreign exchange market. This will create a supply of euros.

E)

When the US economy grows at a  faster pace, European citizens will invest in US securities or in USA in general thus creating a supply of euros as they buy USD for investments.

F)

As the US government pays interest to a European bond holder, it will create a demand for Euros as more USD will be exchanged for Euros to be paid.

G)

More people will speculate and invest in dollars as they fear euro losing value, this will create more supply of euro in the market as people look to invest elsewhere.

Hope that helps.