Falling oil prices reduce global USD demand

Steps:

• Oil demand is price-inelastic, so a rapid price fall causes only a small rise in quantity demanded.
• Total global spending on oil decreases due to lower prices and inelastic demand.
• Since oil is paid in USD, importers need less USD to buy oil, reducing USD demand.
• Lower USD demand in forex markets depreciates the USD exchange rate.

Why C is correct:

• Less demand for USD from oil purchases lowers its value, as per the foreign exchange demand-supply model where reduced demand shifts the curve left, falling the price (exchange rate).

Why the others are wrong:

• A: Demand for USD decreases, not increases, so exchange rate falls.
• B: Supply of USD is unaffected; the effect stems from demand, not supply.
• D: Supply of USD does not decrease; value falls due to demand reduction.

Final answer: C