4.2 The South African Reserve Bank (SARB) seeks to maintain liquidity in the money market using a variety of monetary instruments. The exchange rate is crucial for the Reserve Bank to achieve its dual mandate of price stability. the importance of the exchange rate in maintaining price stability. discuss
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- How will the following event affect variables 1 through 3 in the foreign exchange market under a flexible exchange rate system; other things unchanged. Event: The U.S. Central Bank (the Fed) purchases US dollar using pesos it has on reserve: Variable 1: Supply of pesos in the foreign exchange market ___(increase, decrease, unaffected; briefly explain why). Variable 2: Value of pesos in the foreign exchange market ____(appreciate, depreciate, unaffected; briefly explain why). Variable 3: Mexican goods exported to the U.S. ______________(increase, decrease, unaffected; briefly explain why).How will the following event affect variables 1 through 3 in the foreign exchange market under a flexible exchange rate system; other things unchanged. Event: The U.S. Central Bank (the Fed) starts buying Chinese currency using dollar reserves: Variable 1: Supply of dollar in the foreign exchange market ___(increase, decrease, unaffected: briefly explain why). Variable 2: Value of dollar in the foreign exchange market unaffected: briefly explain why). Variable 3: American goods exported to China unaffected: briefly explain why). (appreciate, depreciate, (increae, decrease,Consider the exchange rate between the Saudi riyal and the euro. Suppose the Saudi government and the Eurozone governments agree to fix the exchange rate at 1 riyal per euro, as shown by the grey line on the following graph. Refer to the following graph when answering the questions that follow. EXCHANGE RATE (Riyal per euro) 4.0 3.5 3.0 1.5 1.0 0.5 0 0 4 Supply of Euros Demand for Euros 8 12 16 20 QUANTITY OF EUROS (Billions) 24 28 32 At the official riyal price of euros, there is a At the official exchange rate of 1 riyal per euro, the euro is pay and the Saudi riyal is ▼ for European exports than they would with a free-floating exchange rate. of euros in the foreign exchange market. , which means that Saudis Suppose the governments in the Eurozone and Saudi Arabia agree to change the official exchange rate from 1 riyal per euro to 2 riyal per euro. The action represents a of the euro and a of the riyal.
- Can you answer this question, please? Someone said that the correct answer is B, but I think it is answer B. Can you help me, please? 50) Which of the following policies could a government or central bank pursue to prevent the exchange rate from depreciating? A) Raise interest rates B) Increase the money supply through open-market operations C) Raise taxes D) Buy foreign currencies on the foreign exchange marketParagraph H H Euros per Dollar Quantity of Dollars Styles 1 Title 1. Headline: Fed raises interest rates; attracts foreign investors. Supply of dollars (increase / decrease / stay the same) Demand for dollars (increase / decrease / stay the same) Euros per Dollar (increase / decrease / stay the same) Quantity of Dollars (increase / decrease / stay the same) Select- Editing Create PDF C and Share link Sh A Consider the foreign exchange market for dollars as discussed in Chapter 14, section 3.2 of your text and depicted above. How would the news headlines below affect the market for foreign exchange? Highlight or change the color of your response. 2 Display SettingsBetween 1879 and 1914, the world's major nations adhered to the gold standard. Under the gold standard, a country maintained a fixed relationship between its stock of gold and its money supply. Suppose that Great Britain defined a British pound as 90 grains of gold, and the United States defined $1 as 150 grains of gold. Under the gold standard, a British pound would have been worth $0.60 Suppose the fixed exchange rate is $0.60 per pound. Suppose that an economic expansion in the United States leads to an increase in imports from Great Britain. On the following graph, shift the relevant curve or curves to illustrate the described changes. Then use the black points (cross symbol) to indicate the imbalance. 1.2 0 Supply for pounds 4 Demand for pounds 12 QUANTITY OF POUNDS (Millions) U.S. dollars. 16 Demand for pounds Supply for pounds + The Imbalance (?
- Monetary policy is very effective under a fixed exchange rate policy. 1. Answer: 2. A revaluation switches expenditures from foreign to domestic commodities and can be used to correct a deficit in the nation's balance-of-payments Answer: 3. The foreign exchange market for any currency is composed of all the locations where the currency is bought and sold for other currencies Answer: 4. Under flexible exchange rates, a trade deficit is automatically corrected by a deprecation of the deficit nation's currency. Answer: 5. Financial reserve assets are excluded from the capital account because changes in reserves reflect government policy rather than market forces. Answer:This question concerns the mechanism of a reserve currency standard. Two countries, X and Y, have two currencies, x and y, fixed to the reserve currency, the U.S. dollar. Suppose the exchange rate between x and the U.S. dollar is 3x per dollar. Suppose the exchange rate between y and the U.S. dollar is 5y per dollar. Explain (using numbers) the mechanism if the x-y exchange rate was 0.5 x per y.Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of multinational companies. Consider the following statement: Countries with lower inflation rates will have lower interest rates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. The statement is invalid, because the nominal interest rate is independent of the inflation rate. The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower inflation rates would result in lower interest rates.
- 6. Fixed exchange rates Consider the exchange rate between the Moroccan dirham and the euro. Suppose the Moroccan government and the Eurozone governments agree to fix the exchange rate at 1.25 dirham per euro, as shown by the grey line on the following graph. Refer to the following graph when answering the questions that follow. EXCHANGE RATE (Dirham per euro) 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0 02 4 6 8 12 QUANTITY OF EUROS (Billions) Supply of Euros Demand for Euros 10 14 At the official exchange rate of 1.25 dirham per euro, the euro is 16 (? , and the Moroccan dirham is I which meansThe figure to the right shows the market for Kuwait's currency, the dinar. Suppose that the following two events take place in the market for the dinar: The U.S. demand for oil, Kuwait's main export good, declines and market interest rates on financial assets denominated in dinar decrease relative to U.S. interest rates. Moreover, assume that exchange rates are flexible. Using the line drawing tool, show how the market for the dinar is impacted by these events Properly label this line, Carefully follow the instructions above, and only draw the required objects. According to your graph, the dinar has with respect to the dollar. Dollars per Dinar 6.0 5.5 5.0 4.5 4.0 3.5- 3.0 2.5 2.0 1.5- 1.0 0.5- 0.0+ 0 1 2 6 Quantity of Dinars (billions) 8 9 D S 10 LyQuestions 12-15: Consider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to depreciate with respect to the U.S. dollar. 14. A fully sterilized intervention in the foreign exchange market by the British government is expected to cause: the British money supply to fall. the British money supply to rise. the British money supply to remain unchanged. Britain to gain official international reserves.