A German company wants to buy dollars to purchase U.S.bonds.In the open-economy macroeconomic model of the U.S. ,this transaction would be accounted for in
A)the supply of currency in the foreign exchange market,and the supply of loanable funds.
B)the supply of currency in the foreign exchange market,and the demand for loanable funds.
C)the demand for currency in the foreign exchange market,and the supply of loanable funds.
D)the demand for currency in the foreign exchange market,and the demand for loanable funds.

Question

Quizplus · Accepted Answer

The transaction involves the purchase of U.S. bonds, which requires the German company to obtain dollars in the foreign exchange market. This increases the supply of dollars in the foreign exchange market, leading to a depreciation of the dollar. Additionally, the purchase of U.S. bonds increases the demand for loanable funds in the U.S. market, leading to an increase in the interest rate. Therefore, the transaction would be accounted for in the supply of currency in the foreign exchange market, and the demand for loanable funds.

A German Company Wants to Buy Dollars to Purchase U