U.S. exports create a demand for foreign currencies

Question

True or false? “U.S. exports create a demand for foreign currencies; foreign imports of U.S. goods generate supplies of foreign currencies.”  Explain.

Answer 1

The first part of this statement is incorrect.  U.S. exports create a domestic supply of foreign currencies, not a domestic demand for them.  The second part of the statement is accurate. The foreign demand for dollars (from US. exports) generates a supply of foreign currencies to the United States.