Question

The _________ for the euros is based on the desire to purchase euro-denominated goods. The __________ of euros comes from people who holds euros and want to buy non euro-denominated goods.

Answer 1

The demand for euros is driven by the desire to purchase goods priced in euros, while the supply comes from those holding euros and seeking to acquire goods in other currencies. Currency strength affects stakeholders in various ways, such as providing benefits to domestic exporters and tourists abroad. Countries with a common currency like the euro are subject to the monetary policy of a central authority, impacting national monetary policy decisions.

Step-by-step explanation:

The demand for the euros is based on the desire to purchase euro-denominated goods. The supply of euros comes from people who hold euros and want to buy non-euro-denominated goods. Understanding the dynamics of currency exchange is crucial in international trade and finance. For example, when the euro becomes stronger or appreciates, it affects various stakeholders differently.

A British exporter receiving payments in euros will benefit from a stronger euro because it means receiving more pounds after conversion. Similarly, a Dutch tourist converting euros to Chilean pesos will have a more cost-effective vacation due to a stronger euro, and a Greek bank will find Canadian bonds cheaper, potentially leading to increased purchasing.

However, an increase in the euro's value doesn't affect intra-eurozone trade, like between France and Germany, since both use the euro. While currency strength can be beneficial, it's essential to consider that countries using a merged currency like the euro have surrendered control over domestic monetary policy to a central authority like the European Central Bank, which creates implications for monetary policy decisions at a national level, such as in Portugal's case.

In foreign exchange markets, the demand and supply dynamics can shift with global events. For instance, if European investors start buying more U.S. government bonds, this increases the demand for U.S. dollars, possibly strengthening the dollar against the euro. This interplay between currencies is a foundation of international economics and is pivotal for businesses, investors, and governments.

Answer 2

The demand for euros is motivated by the need to purchase goods priced in euros, whereas the supply is attributed to the intent to acquire goods in other currencies. Fluctuations in the euro's value are influenced by various economic actors like exporters, tourists, and investors, through the foreign exchange market which is governed by supply and demand dynamics.

Step-by-step explanation:

The demand for the euros is based on the desire to purchase euro-denominated goods. The supply of euros comes from people who hold euros and want to buy non euro-denominated goods. For example, a British exporter will receive euros from sales and will need to exchange them for pounds; here the exporter is supplying euros. Conversely, a Dutch tourist exchanging euros for Chilean pesos is demanding pesos but supplying euros. The demand and supply dynamics are influenced by changes in currency strength. An increase in the value of the euro means it will buy more of another currency, benefiting those holding euros and seeking goods or investments denominated in other currencies.

Foreign exchange markets facilitate the trade of one currency for another, with currency exchange rates reflecting these supply and demand conditions. Euro nations have surrendered domestic monetary policy control to the European Central Bank, which makes policy for all eurozone countries, affecting the euro's strength and, therefore, its supply and demand. The impacts of these changes are evident in various scenarios, such as more favorable exchange rates for tourists and benefits for investors purchasing foreign bonds.