The market for foreign exchange can be analyzed in terms of supply and demand. Americans demand foreign money (and supply dollars) when they buy things abroad, such as vacations, goods, services, factories, and financial assets. Foreigners supply foreign currency (and demand dollars) when they buy things here, such as vacations, goods, services, factories, and financial assets. Although when you buy a Japanese camera, you do not deal in the foreign exchange market, someone did in the process of bringing the camera to you. It may have been the American importer, who would have sold dollars to buy yen, and then used the yen to buy the camera. Or it may have been the Japanese exporter, who sold cameras for dollars and then sold the dollars for yen. In either case, dollars were supplied to the foreign exchange market and yen were demanded.
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