Question

Choose the most correct answer from the alternatives provided: i) The demand for dollars increase while...

Choose the most correct answer from the alternatives provided:

i) The demand for dollars increase while the euro depreciates.

ii) The demand for euros increase while the euro appreciates.

iii) The dollar appreciates because the demand for dollar is increasing.

iv) The dollar depreciates because the demand for euros is increasing.

v) The euro depreciates because the demand for dollar is increasing.

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Answer #1

Appreciation of a currency and demand for that currency have a positive relationship with each other. If there is appreciation of currency (value of one currency is increasing against other), its demand rises and vice versa.

If euro appreciates against dollar, single euro can buy more dollars now which can buy more goods from U.S. market. Appreciation of euro induces people to buy more of euros if they do currency trading and sell it later.

Appreciation of a currency raises its demand while demand of a currency does not appreciates it.

Option B is correct.

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