Question

Other things the same, which of the following would shift the supply of dollars in the market for foreign exchange to the right?a. foreigners want to buy more U.S. bonds b. foreigners want to buy fewer U.S. bonds c. foreigners want to buy more U.S. goods and services d. foreigners want to buy fewer U.S. goods and services

Answer 1

Answer:

The correct answer is option a.

Explanation:

An increase in the demand for US bonds will shift its demand curve to the right. This rightwards shifts in the demand curve for US bonds will increase their price.  

The higher price of bonds indicates a lower interest rate. At lower interest rate investment in the US will become less profitable. So the domestic investors will invest their money in the countries with higher interest.  

This will increase the supply of US dollars in foreign exchange. This increase in the supply of US dollars will shift the supply curve to the right.