Question

Indicate whether each of the following creates a demand for, or a supply of, European euros...

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

a.   A U.S. airline firm purchases several Airbus planes assembled in France.

b.   A German automobile firm decides to build an assembly plant in South Carolina.

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Answer #1

A US airline firm purchases several airbus planes assembled in France

Purchasing Airbus planes Assembled in France will increase the demand for Euros against dollar. The Euro will appreciate against Dollar. The demand curve for Euros will shift from D to D1.

B. A German automobile firm decides to build an assembly plant in south Carolina

Building assembly plant in south Carolina, USA need to be paid in dollars. This will increase the demand for dollars and the dollar will appreciate against Euro. The supply for Euros will increase in Foreign exchange market. The supply curve will shift from S to S1

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