1. Why will the exchange rates of foreign currencies relative to U.S. dollars decline when U.S....

Question

1. Why will the exchange rates of foreign currencies relative to U.S. dollars decline when U.S. domestic tastes change, reducing the demand for foreign-produced goods?

2. Why does the demand for foreign currencies shift in the same direction as domestic income? What happens to the exchange value of those foreign currencies in terms of U.S. dollars?

Komalavalli · Accepted Answer

Q1)
Currency demand, which is influenced by commerce, has an impact on relative values. When a country exports more than it imports, there is a strong demand for the commodities, and hence a high demand for the currency. In a supply and demand system, when demand is high, prices increase and currencies become more costly. In contrast, if imports exceed exports, the price of the currency should decline since there is less demand for it.

1. Why will the exchange rates of foreign currencies relative to U.S. dollars decline when U.S. domestic tastes change, reducing the demand for foreign-produced goods? 2. Why does the demand for...

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