. Foreign exchange supply and demand Draw a diagram for the foreign exchange mar

Question

. Foreign exchange supply and demand    Draw a diagram for the foreign exchange market for the dollar vs the euro. Model your diagram on Figure 10.3. Place "euros per dollar" on the vertical axis. Suppose now that rapid growth of the US economy increases US demand for European goods, while there is no change in growth of countries using the euro. Will the increase in US growth affect the demand for euros, the supply of euros, both, or neither? Why? Will the result be an appreciation, depreciation, or no change in the euro? Why?

Explanation / Answer

Draw a diagram for the foreign exchange market for the dollar vs the euro.

The foreign exchange market:-Exchanging currency means trading one currency for another. The value at which an exchange takes place is called the exchange rate, which can be regarded as the price of one currency expressed in terms of another one, such as

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