5. Suppose there are only two countries in the world, U.S. and Mexico, with two currencies associated with them, dollar and peso respectively, traded in the foreign exchange market. All other things constant, explain how value of Peso changes, either appreciates or depreciates as the result of the following two events. Briefly explain why. Event a: Interest rates on savings bonds in Mexico rise above interest rates on savings bonds in the U.S. Event b: GDP grows faster in the U.S. than it does in Mexico.

5. Suppose there are only two countries in the world, U.S. and Mexico, with two currencies associated with them, dollar and peso respectively, traded in the foreign exchange market. All other things constant, explain how value of Peso changes, either appreciates or depreciates as the result of the following two events. Briefly explain why. Event a: Interest rates on savings bonds in Mexico rise above interest rates on savings bonds in the U.S. Event b: GDP grows faster in the U.S. than it does in Mexico.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

8. Suppose that last year, the nominal exchange rate between the Japanese yen and the British pound was ¥150.0 per £1.0, one unit of Japanese output cost ¥1300, and one unit of British output cost £8.0.a. What was the real exchange rate between the U.K. and Japan last year, expressed as the cost of British output (i.e. – the quantity of Japanese output that exchanges for 1 unit of British output)? In which country were goods more expensive last year?
2. Suppose the central bank of a country is worried about the economy overheating so it enacts a contractionary monetary policy (reducing the money supply): 2A. Assuming the country has a fixed exchange, illustrate the effects of the contractionary monetary policy with both an IS-LM-BOP graph and a foreign exchange market graph for the foreign currency, explaining which curve(s) shift and why. Explain the effects on GDP, interest rates, and the current account and capital account. 2B. What would the central bank have to do to maintain the fixed exchange rate? Illustrate this on the foreign exchange graph in 2A. (You do not need a new graph). 2C. Define sterilization and explain what the central bank would have to do to sterilize the intervention. Show on your graphs the GDP, interest rate, and exchange rate with sterilized intervention (label as point 1 on the graphs from 2A). 2D. Suppose instead the central bank does not sterilize the intervention. Explain what would happen and…
2. Explaining short-run economic fluctuations A majority of economists believe that in the long run, real economic variables and nominal economic variables behave independently of one another. For example, an increase in the money supply, a no long-run effect on the quantity of goods and services the economy can produce, a and nominal variables is known as variable, will cause the price level, a AL AXIS However, in the short run, most economists believe that real and nominal variables are intertwined. Economists use the model of aggregate demand and aggregate supply to examine the economy's short-run fluctuations around the long-run output level. The following graph shows an incomplete short-run aggregate demand (AD) and aggregate supply (AS) diagram-it needs appropriate labels for the axes and curves. In the questions that follow you will identify some of the missing labels. AS variable, to increase but will have variable. The distinction between real variables ?
Q3-11 If a country ties its currency to a specific foreign currency and allows its holdings of that currency to govern the country's money supply, this arrangement is known as a Select one: a. currency board. b. floating exchange rate. c. monetary union. d. Special Drawing Right.
Ignoring any change in exchange rates, if interest rates in country X are 3%, interest rates in country Y are 2.5%, and interest rates in country Z are 1%, what would be the most profit you could make by borrowing and depositing $10,000? Give typing answer with explanation and conclusion
13. Study Questions #13. Ch 11. Suppose the interest rate (on an annual basis) on three-month Treasury bills is 10% in London and 6% in New York, and the spot rate of the pound is $2.03. How can a U.S. investor profit from uncovered interest arbitrage? O Purchase pounds at $2.03 in New York to buy U.K. Treasury bills in London, thus earning 4% per year. O Purchase pounds at $2.03 in New York to buy U.K. Treasury bills in London, thus earning 3% per year. O Purchase pounds at $2.03 in New York and sell them in the U.K., thus earning 4%. O Purchase pounds at $2.03 in New York to buy U.K. Treasury bills in London, thus earning 3.05% per year.
A U.S. company wants to buy its televisions from a Chinese company. The Chinese company sells its TVs for 1,200 yuan each. The current exchange rate between the U.S. dollar and the Chinese yuan is $1 = 6 yuan. How many U.S. dollars will the U.S. company have to convert into yuan to pay for each television? A. $1,200 B. $7,200 C. $200 D. $100
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
Use the following information to answer Questions 78 to 80: The Czech Republic, whose own currency is the koruna (Kë) and whose foreign currency is the euro (€), begins to intervene in the exchange market in order to stimulate its exports to the EU. Kč J€ Se {left} {right} De Qe To stimulate its exports the Czech central bank could O neither sell euros O buy euros
3. If interest rates increase in a country with a fixed exchange rate, what will the central bank do? A. Buy the country's currency B. Sell the country's currency C. Engage in contractionary fiscal policy 4. The United States has floating exchange rates. Suppose there is an increase in inflation in the United States. What will happen? A. The U.S. central bank will sell U.S. currency so the exchange rate remains constant B. The U.S. central bank will buy Euros so the exchange rate remains constant C. The exchange rate (price of a dollar) will go up D. The exchange rate (price of a dollar) will go down 5. Belize uses a fixed exchange rate, with one Belize dollar equal to one half of a U.S. dollar. There is an increase in U.S. citizens traveling to Belize on vacation. What will the central bank do? A Buy the country's currency B. Sell the country's currency Sell bonds to banks C.
At the official exchange rate of 2.5 dirham per euro, the euro is and the Moroccan dirham is that Moroccans pay for European exports than they would with a free-floating exchange rate. At the official dirham price of euros, there is a of euros in the foreign exchange market. which means Suppose the governments of the Eurozone and Morocco reevaluate their currencies so that their official exchange rate is now 1 dirham per 1 euro. This action results in of the euro.
8. Why exchange rates matter Suppose that you go on vacation to Canada every summer. Last year, the hotel room where you stayed cost C$100 per night, and it costs the same this year. The exchange rate was 1.04 US$/C$ last year, and it is 0.95 US$/C$ this year. This means you will pay per night this year than you paid last year. The U.S. dollar-Canadian dollar exchange rate is essentially the price of a Canadian dollar in terms of U.S. dollars. When this price falls, the Canadian dollar is said to depreciate against the U.S. dollar. Thus, from your analysis, you can conclude that when the Canadian dollar depreciates against the U.S. dollar, Canadian goods and services become expensive for Americans. DeutschAuto is a German automaker that pays most of its production costs in euros. Suppose that in 2007, DeutschAuto's cost of producing a car was €23,000 and that the company sold a car in the United States for $36,000. Further, suppose that the dollar-euro exchange rate rose from 1.35$/ €…