2. Suppose that Canada and Nigeria each produce similar cars, which are traded internationally. The price of a car in Canada is 50,000 Canadian Dollars, while the price of the same car in Nigeria is 10,000,000 Nigerian Naira. The market exchange rate between Canadian Dollar and Nigerian Naira is 1 Canadian Dollar = 304.88 Nigerian Naira. a. Show that when using the market exchange rate, the price of the same car seems much cheaper in Nigeria or much more expensive in Canada (1 point). b. Calculate the PPP exchange rate between the two currencies (0.5 point) c. Show that the price of a car is actually the same when using the PPP exchange rate in the two countries. (0.5 point)

2. Suppose that Canada and Nigeria each produce similar cars, which are traded internationally. The price of a car in Canada is 50,000 Canadian Dollars, while the price of the same car in Nigeria is 10,000,000 Nigerian Naira. The market exchange rate between Canadian Dollar and Nigerian Naira is 1 Canadian Dollar = 304.88 Nigerian Naira. a. Show that when using the market exchange rate, the price of the same car seems much cheaper in Nigeria or much more expensive in Canada (1 point). b. Calculate the PPP exchange rate between the two currencies (0.5 point) c. Show that the price of a car is actually the same when using the PPP exchange rate in the two countries. (0.5 point)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question 2 of 25 In which situation is a country most likely to choose a flexible exchange rate for its currency? O A. A country believes that its currency will be in low demand in global markets. B. A country worries that the value of its currency could rise and fall unpredictably. C. A country has a reputation for having a strong and stable economy over time. O D. A country wants to make sure that its currency is stable in all economic situations.
A 216.
If Boblandia had a flexible exchange rate, it would cost 5 Bobos to purchase a Canadian dollar. The Central Bank of Boblandia (aka, the Bank of Boblandia, or BoB) has fixed the exchange rate, saying it will buy or sell Bobos at C$0.25 for each Bobo. Which of the following is true? O At the fixed exchage rate, supply of Bobos exceeds demand. The BoB's holdings of Canadian dollars will increase. O At the fixed exchage rate, supply of Bobos exceeds demand. The BoB's holdings of Canadian dollars will decrease. O At the fixed exchage rate, supply of Bobos is less than demand. The BoB's holdings of Canadian dollars will increase. O At the fixed exchage rate, supply of Bobos is less than demand. The BoB's holdings of Canadian dollars will decrease.
A. Canada produces natural resources (coal, natural gas, and others), the demand for which has increased rapidly as China and other emerging economies expand. i. Explain how growth in the demand for Canada's natural resources would affect the demand for Canadian dollars in the foreign exchange market. Explain how the supply of Canadian dollars would change. ii. iii. Explain how the value of the Canadian dollar would change. iv. Illustrate your answer with a graphical analysis. 1
3. If the exchange rate changes from 1.50 Canadian dollars per U.S. dollar to 1.67 Canadian dollars per U.S. dollar, we say that the Canadian dollar has appreciated against the U.S. dollar. True False
J 4
15. Which of the given statements concerning the market for foreign currency exchange is true? a. An increase in Canadian net capital outflow increases the supply of Canadian dollars and the Canadian dollar appreciates. b. An increase in Canadian net capital outflow increases the demand for Canadian dollars and the Canadian dollar appreciates. c. An increase in Canadian net capital outflow increases the demand for Canadian dollars and the Canadian dollar depreciates. d. An increase in Canadian net capital outflow increases the supply of Canadian dollars and the Canadian dollar depreciates. e. None of the above.
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5) Indicate whether each of the following creates a demand for or a supply of European euros in foreign exchange markets: a. Liberty purchases an Airbus plane assembled in France b. Mercedes-Benz decides to build an assembly plant in Knoxville c. A Liberty student decides to spend a year studying at the Sorbonne in Paris d. An Italian manufacturer ships machinery from Rome to Venice on an Egyptian freighter e. It is widely expected that the euro will depreciate in the near future
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