Economics: Principles, Problems, and Policies, 19th Edition

Published by McGraw-Hill Education
ISBN 10: 0073511447
ISBN 13: 978-0-07351-144-3

Chapter 38 - The Balance of Payments, Exchange Rates, and Trade Deficits - Questions - Page 798: 2a

Answer

Demand for euros

Work Step by Step

So when the US exports goods to foreign countries, the foreign countries must have to pay in US dollars. Therefore, foreign countries are supposed to exchange their currency for the U.S. dollar, which they can do at foreign exchange markets. Hence, the US will have a stock of foreign currencies, which they can use whenever they purchase imports from those countries. When U.S. airline buys Airbus planes from France, there will be a Demand for euros (Americans need euros to pay French exporter).
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