Question

If there's a huge increase in the number of Americans traveling to Europe (say, for the Olympics), then the effect on the foreign exchange market is that the___________. A. demand for euros would decrease. B. supply of euros would increase. C. demand for euros would increase. D. supply of euros would decrease

Answer 1

Option (C) is correct.

Step-by-step explanation:

If there is a huge increase in the number of Americans travelling to Europe then as a result the demand for the euros increases in the foreign exchange market.

Americans won't be able to spend dollar for doing any transaction in Europe, so there is a need to exchange dollar for euros. Hence, this will increase the demand for euros and there is a appreciation of Europe currency. Therefore, the value of euro also increases.