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- What is the purchasing power parity exchange rate?17. Question 17 options: ---------- is the technique of protecting against the potential losses that result from adverse changes in exchange rates24. The inflation rate in the U.S. is 3%, while the inflation rate in Japan is 10%. The current exchange rate for the Japanese yen (¥) is $0.0075. After supply and demand for the Japanese yen has adjusted in the manner suggested by purchasing power parity, the new exchange rate for the yen will be:
- Question 1 Draw an appropriate curve with an exchange rate (Euro/$) on the Y-axis and the quantity of dollars on the X-axis. Explain how the following factors affect the dollar's exchange rate under a flexible exchange rate system. (i) An increase in the interest rate in the United States. (ii) Inflation happens in the United States.21. What does Foreign Exchange mean? Why do we see currency fluctuations?1. The principal function of the foreign exchange market is the transfer of funds, thus purchasing power, from one nation and currency to another. 2. If it takes 116.57 yen to buy one dollar, it takes $.0085785 to buy one yen. 3. Purchasing-power parity theory postulates that the change in the exchange rate between two currencies is proportional to the change in the ratio in the two countries' general price levels. 4. The price-specie-flow adjustment mechanism operates by the deficit nation losing gold and experiencing a reduction in its money supply. 5. Monetary policy is very effective under a fixed exchange rate policy. True or Falae
- 1. Suppose that the equilibrium exchange rate between the United States and South African is 15.13 Rand per US dollar. Further suppose that the two countries are trading partners with each other. Inflation now rises in South Africa. Which of the following answer choices correctly represents the shift that would occur in the US foreign exchange market? The supply of US dollars would fall. The demand for South African Rands would rise. The supply of South African Rands would rise. The supply of US dollars would rise.7) Suppose that as a policy maker you increased money supply to increase in-vestment to decrease unemployment level in the country. However, at the end of the period it is revealed that the policy increased the unemployment level in the country. Explain this unexpected outcome by considering policy's implications in the foreign exchange market?9. A) Where does the market for foreign currency come from? How does this market work if we use the flexible exchange rate system? Using terms from lecture what happens to both countries currency if there is a shift of supply or demand? There were terms given that are used to describe changes in currency exchange rates, define and use these terms.
- Q: Suppose that the equilibrium exchange rate (Euro/$) is .60 and the The Federal Reserve decides to fix the exchange rate at.40. What will the Federal Reserve have to do in order to maintain this fixed exchange rate? A. The Federal Reserve will need to supply dollars in the foreign exchange market and exchange them for euros to maintain the undervaluation of the currency. B. The Federal Reserve will need to have official reserves of dollars to purchase pesos in the foreign exchange market. C. The Federal Reserve will need to have official reserves of euros to purchase dollars in the foreign exchange market. D. The Federal Reserve will need to supply euros in the foreign exchange market to keep the currency undervalued.1.) Draw two graphs representing the foreign exchange market. Graph 1.1 that shows an official (fixed) exchange rate (label as eo) that is below the equilibrium exchange rate (label as ee) and Graph 1.2 that shows an official exchange rate that is above the equilibrium exchange rate. For both graphs, a.) indicate if there is a shortage or a surplus. b.) explain how the Central Bank will intervene using its international reserves to maintain the fixed exchange rate; c.) describe how this intervention will be recorded in the BOP9-) Question: A protective trade policy . Net exports since the and . The increase is .... ww w m net exports. a) increases / interes rate adjusts / increases b) reduces / exchange rate depreciates / eliminates c) does not change / exchange rate / eliminates d) does not change / Exchange rate depreciates / eliminates e) does not change / interest rate adjusts / eliminates 10-) Question: The % increase in the nominal exchange rate equals the % increase in the real exchange rate the . inflation rate a) plus / foreign / minus / domestic b) minus / foreign / minus / domestic c) plus / domestic / minus / foreign d) minus / domestic / plus / foreign e) plus / domestic / plus / foreign