The ______of services from foreigners ________ the supply of dollars to the exchange market.
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A. B. C. D.D
The import of services from foreigners expands the supply of dollars to the exchange market; service imports are entered on the balance of payments accounts as debit items.
The correct answer is A. import; reduces.
In the context of the foreign exchange market, the supply of dollars refers to the availability of US dollars in the market. When foreigners provide services, such as tourism, consulting, or outsourcing, they are essentially exporting those services from their home country to another country.
When a country imports services, it means that it is purchasing services from foreign entities and paying for them in foreign currency, such as US dollars. In this case, the payment made by the importing country reduces its supply of dollars because it is exchanging its domestic currency for foreign currency to pay for the imported services.
Therefore, importing services from foreigners reduces the supply of dollars in the exchange market, as stated in answer choice A.