Generally speaking, how is the dollar price of euros determined?

Explanation
Exchange rates for a currency are determined in the foreign exchange market at the point where its supply is equal to its demand. Consequently, the dollar price of the euro is determined at the point where the demand for euros in the currency exchange market is equal to its supply.

Any change in either the demand or supply of euros in the foreign exchange market alters the dollar price of euros. The dollar price of euros may increase in case the demand for them increases or the supply decreases. An increase in demand shifts the demand curve for euros toward the right, leading to an increase in their dollar prices. An example could be the increase in pharmaceutical imports of Country U from Country F, which leads to Country U demanding more euros to pay Country F for the imports made.

Also, when the supply of euros declines in the foreign exchange market, their supply curve shifts toward the left, leading to a rise in the dollar prices of euros. An example could be the decrease in machinery imports of Country F from Country U, which leads to Country F demanding fewer dollars. Consequently, Country F may exchange fewer euros with dollars, thereby causing the supply of euros to decline in the foreign exchange market.

Similarly, the dollar price of euros may decrease in case the demand for them decreases or the supply increases. A decrease in demand shifts the demand curve for euros toward the left, leading to a decrease in their dollar prices. An example could be the decrease in pharmaceutical imports of Country U from Country F, which causes Country U to demand fewer euros to pay Country F for the imports made.

Also, when the supply of euros rises in the foreign exchange market, the supply curve for them shifts toward the right, leading to a decline in the dollar prices of euros. An example could be the increase in machinery imports of Country F from Country U, which leads to Country F demanding more dollars. Consequently, Country F exchanges more euros with dollars, thereby causing the supply of euros to increase in the foreign exchange market.

When the dollar price of the euro rises, it suggests that the euro has appreciated against the dollar as more dollars would now be required to get one euro. This in turn suggests that fewer euros are required to buy one dollar. Consequently, the euro price of the dollar has also declined.

Exchange rates are the values of one currency in terms of the other currencies. They help a country quote the price of its goods and services in different countries in their respective domestic currencies. For instance, given the exchange rate between euro and dollars, Country U can quote the price of its goods in Country U in terms of euros, whereas Country F can quote the price of its goods in Country U in terms of dollars. Any increase or decrease in the exchange rate between these two currencies changes the prices of goods quoted by both countries in the other country's currency.

The purchasing power parity theory suggests that the ratio of price level between two countries is equal to the exchange rates between the currencies of those two countries. If the exchange rate adjusts itself to price changes, thereby suggesting that the purchasing power parity holds true between the two countries, it requires similar dollars for an individual to buy the same good anywhere in the two countries. For instance, if a good costs $20 in Country U and $10 in Country F, the ratio of the Country U prices to Country F prices would be 2. This in turn suggests that the exchange rate between the dollar and euro would be 1 dollar for 2 euros. In case the price in Country F declines to $5, the exchange rate should change to 1 dollar for 4 euros to maintain the purchasing power parity between Country U and Country F.

Verified Answer
The dollar price of euros is the price that causes the demand and supply for euros to become equal to one another.

The dollar price of euros could increase in case the demand for euros increases or the supply decreases in the currency exchange market.

The dollar price of euros could decrease in case the demand for euros decreases or the supply increases in the currency exchange market.

An increase in the dollar price of euros requires an individual to give up a greater amount of dollars to get one euro. This suggests appreciation in the euro relative to the dollar. Appreciation in the euro against the dollar implies that the dollar has depreciated against the euro. This implies that the euro price of the dollar has declined as fewer euros are required to buy one dollar.

The dollar-euro exchange rate enables Country U to quote Country U-produced goods in terms of euros and also enable Country F to quote Country F-produced goods in terms of dollars to facilitate trade between them. Any change in the exchange rate between euro and dollars changes the euro price of Country U goods and the dollar price of Country F goods.

The purchasing power parity theory states that the exchange rate between two currencies of two countries is equal to the price level ratio between those two countries. For instance, if the price level in Country U is $20 and the price level in Country F is $10, the dollar-euro exchange rate may be stated as 1 dollar for 2 euros. Any change in the price level causes the exchange rate to adjust itself for the purchasing power parity to hold true.