Question

In the supply and demand for U.S. dollars in Europe, who is a demander in that...

In the supply and demand for U.S. dollars in Europe, who is a demander in that market?

Americans who want to invest in Europe

Europeans who want to invest in the United States

Americans who want to bring their investments back to the United States

Europeans who want to invest in the United States and Americans who want to bring their investments back to the United States only

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Answer #1

Answer to the question:

Option d: Europeans who want to invest in the United States and Americans who want to bring their investments back to the United States only.

Explanation: When the Europeans invest in the US the demand for dollar in the Europe increases (bacause the Europian investors want to buy dollar by paying Euro) and as a result the Euro depreciates in Europe and the dollar appreciated in the Europe. This will cause the exchange rate in the Europe to go up.

On the other hand, when the Americans want to withdraw the FPI fron Europe, the Americans will demand dollar in Europe by paying Euro. So, again the outflow of dollar will take place in Europe and also the Euro depreciates and dollar will appreciates.

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