Travelers to Europe usually exchange dollars for euros. Assuming that the euro supply is static, how does this currency exchange, considered in isolation, affect the demand for euros and the exchange rate?

Question

Rudy Cain

Business

26 March, 02:43

Travelers to Europe usually exchange dollars for euros. Assuming that the euro supply is static, how does this currency exchange, considered in isolation, affect the demand for euros and the exchange rate?

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Answers (1)

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Eli · Answer 1

Increase demand for euros and Increase US dollar price of the Euro

Explanation:

The U. S travelers to Europe will require euros while in Europe. However, since the supply of euros is static i. e does not change with change in demand, there will be more people demanding for the euro resulting into increased demand for the euro. As a result, people will have to pay more US dollars to obtain euros thus increasing the US dollar price of the euro.