Question

In the US foreign exchange market, which of the following is a source of foreign exchange supply?

-purchase of British stocks
-demand for US exports
-demand for foreign goods
-central bank purchase of foreign reserves

Answer 1

Foreign exchange supply in the US market includes central bank purchase of foreign reserves, as well as foreign firms, tourists, and investors.

Step-by-step explanation:

In the US foreign exchange market, one source of foreign exchange supply is the central bank's purchase of foreign reserves. When a central bank wants to strengthen its own currency, it can buy foreign currencies using its reserves of international currency like the US dollar or the euro. However, this method can only be effective until the central bank runs out of reserves. Other sources of foreign exchange supply include foreign firms that have sold imports in the US economy and want to convert their earnings back to their home currency, U.S. tourists abroad, and U.S. investors seeking to make financial investments in foreign economies.