Question

In the dollar-euro foreign exchange market, if many financial investors become worried about the stability of the euro and thus invest in U.S. financial assets instead of in European assets, then the

Answer 1

Supply of euros will increase and the euro will depreciate

Step-by-step explanation:

The euro will depreciate against the US dollar. This means that you will need more euros (or more euro cents) to buy one US dollar.

Both the euro and the US dollar are free floating currencies, which means that their value is given by the supply and demand. Since the supply of euros increases, as well as the demand for US dollars increases, the US dollar will appreciate against the euro.