Question

The demand for euros on the foreign exchange market is a derived demand. Explain this statement.

The demand for euros on the foreign exchange market is a derived demand. Explain this statement.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

It is right and we need to consider the reasons why those who demand Euros in the forex market do so. There could be two types of demanders: Those who live outside the Eurozone and import goods and services produced in the Eurozone to their countries. Since they need to pay for these in Euros, they would buy Euros from the market in exchange of their home country currency.

Similarly, those who want to buy assets in Eurozone (or invest there) would need Euros which they would buy in the forex market by exchanging their home country currency

Hence the demand for Euros in the foreign exchange market is a derived demand (derived from the underlying transaction to buy goods / services or to invest).

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
When the Bank of Canada sells euros in the foreign exchange market, it is engaging in...
When the Bank of Canada sells euros in the foreign exchange market, it is engaging in (quantitative easing, sterlization, or foreign exchange market operations) Could you explain why its the answer as well. Thanks
1. Assume that the Fed intervenes by exchanging euros for dollars in the foreign exchange market....
1. Assume that the Fed intervenes by exchanging euros for dollars in the foreign exchange market. This will cause an ____ in the supply of euros in the foreign exchange market, and will place _______ pressure on the value of the euro. a. outward shift; downward b. inward shift; downward c. inward shift; upward d. outward shift; upward 2. Under a freely floating exchange rate system a. central bank intervention in the foreign exchange market is not necessary. b. exchange...
Explain how automakers interact with the foreign exchange market.
Explain how automakers interact with the foreign exchange market.
When the exchange rate falls for Dollars, in the foreign exchange market the    A) quantity...
When the exchange rate falls for Dollars, in the foreign exchange market the    A) quantity demanded of the dollar increases.     B) demand for the $ currency increases. C) quantity demanded of the $ decreases.            D) demand for the $ decreases
Consider the Euro-dollar exchange rate (nominal exchange rate = Euros/$US). For each of these examples, use...
Consider the Euro-dollar exchange rate (nominal exchange rate = Euros/$US). For each of these examples, use a supply/demand diagram for the foreign exchange market to show the impact on the exchange rate. In each case, does the exchange rate appreciate or depreciate? a. A debt crisis in Europe causes investors holding Euro denominated securities to move to dollar denominated securities. b. The European Central Banks raises interest rates, attracting inflows from U.S. financial investors into European markets. c. The European...
If a country is a net borrower on the global foreign exchange market, explain how the...
If a country is a net borrower on the global foreign exchange market, explain how the domestic real interest rate compares to the world real interest rate.
Complete the following: Using a supply and demand model in the market for foreign exchange, show...
Complete the following: Using a supply and demand model in the market for foreign exchange, show how each of the following changes will affect the exchange rate (R) in the market for U.S. dollars. a. The United States experiences rapid decrease in productivity b. Return to investments in the United States increase. c. American computers are less popular abroad. d. The stock market in the United States recovers from the Great Recession. e. There is evidence of deflation (decrease in...
Use the diagrammatic analysis of foreign exchange equilibrium and explain the effects of a rise in...
Use the diagrammatic analysis of foreign exchange equilibrium and explain the effects of a rise in the interest rate paid on dollar deposits from R1$ to R2$. [Hint: Your answer should include an explanation of what happens to the relative attractiveness of holding deposits in the two currencies (dollars and euros) at the original exchange rate E1 $/€ and how the new equilibrium exchange rate E2 $/€ is achieved.]
When demand for Canada’s exports falls: a. supply of the Canadian dollar in the foreign exchange...
When demand for Canada’s exports falls: a. supply of the Canadian dollar in the foreign exchange market rises. b. the U.S. federal government will always respond by increasing U.S. tax rates. c. the U.S. federal government will always respond by increasing U.S. exports. d. Canadian producers will sell more goods to foreigners. e. demand of the Canadian dollar in the foreign exchange market falls.
Consider the foreign exchange market for British pounds from the US perspective (i.e., imagine the supply-demand...
Consider the foreign exchange market for British pounds from the US perspective (i.e., imagine the supply-demand diagram where the pound is the foreign currency). Draw a diagram to illustrate the impact of the US Federal Reserve using a contractionary monetary policy and state what happens to the value of the British pound.
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT