a. domestic goods and services.
b. foreign goods and services.
c. gold.
d. domestic exports.
e. U.S. dollars.
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June 26th, 2008 at 1:35 am
b… foreign currency=foreign goods and services
June 26th, 2008 at 1:35 am
I think two possible answers, depends on point of view:
Answer b holds, if foreign goods and services can only be paid in foreign money, which is not always the case.
The demand for foreign currency can be based on the demand for U.S dollars, because if we are looking on money market (only currencies) the budget equation can be seen as the sum of domestic currency and foreign currency:
money holdings= x*domestic currency + (1-x)foreign currency
Answer this question in dependency of what kind of course you are.
June 26th, 2008 at 1:35 am
The answer is B, for a simple reason. Say you are an importer and would like to buy from Japan. To do so you will need to convert dollars to Yen.
June 26th, 2008 at 1:35 am
"B" is right one.