Question

If a strike takes place in France, making it harder to buy French goods, what will happen to the value of the U.S. dollar?

Short answer

The US dollar will appreciate. Let Country F to be the domestic country. it's tough to induce French goods because of strike. People will value more highly to buy more foreign goods therefore the worth of the euro within the future will fall. The expected return on euro assets falls because the expected depreciation in euro.

Step-by-step solution

Concept Introduction 

Charge per unit is that the rate at which domestic currency is exchanged with foreign currency. rate provides the relative price of fine in terms of domestic and foreign currency. rate is extremely volatile, and it affects the economy's foreign trade. rate of exchange may be calculated as:

$\text{Exchange Rate}\left(e^t\right)=\frac{\text{Foreign pricelevel}\left({\mathrm{P}}_t\right)}{\text{DomesticPricelevel}\left({\mathrm{P}}_{\mathrm{d}}\right)}$

Explanation of Solution

In the diagram,

X axis shows the number of dollar assets.

Y axis expected rate of euro and dollar.

As shown within the diagram, the demand curve shifts to the correct and also the value of the dollar assets will increase. Fall within the value of euro will make foreign vacation and goods cheaper for US. Appreciation of currency means the rise within the value of domestic currency relative to foreign currency. Appreciation of currency makes foreign goods cheaper relative to the domestic goods.