How will the following event affect variables 1 through 3 in the foreign exchangemarket under a flexible exchange rate system; other things unchanged.Event: The U.S. Central Bank (the Fed) starts buying Chinese currency using dollarreserves: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 marketunaffected: briefly explain why).Variable 3: American goods exported to Chinaunaffected: briefly explain why).(appreciate, depreciate,(increae, decrease,

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ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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(1-4) Assume that consumers all around the world only consume Big Macs at MacDonald's. An American tourist found that 50 USD can purchase 30 Big Macs in India, but the same amount of money can only purchase 25 Big Macs in China. The real exchange rate between China and India is A) 1 unit of consumption goods in India = 5/6 unit of consumption goods in China B) 1 unit of consumption goods in China = 5/6 unit of consumption goods in India C) 1 unit of consumption goods in India = 2 unit of consumption goods in China D) 1 unit of consumption goods in India = 1/2 unit of consumption goods in China
Assume that Canada and the United States frequently trade with each other. Under the freely floating exchange rate system, low inflation in the U.S. will place ____ pressure on Canadian dollars (versus U.S. dollars), ____ the amount of Canadian dollars available for sale, and result in ____ inflation in Canada. a) upward; reduce; unchanged b) upward; increase; lower c) downward; reduce; lower d) downward; increase; unchanged e) None of the above
The figure to the right shows the market for Thailand's currency, the baht Suppose market interest rates on financial assets denominated in baht decline relative to market interest rates on financial assets denominated in other nations' currencies. Moreover, assume a floating exchange rate Using the line drawing tool, show how the market for the baht is impacted by this event. Properly label this line Carefully follow the instructions above, and only draw the required objects. According to your graph, the baht has with respect to the dollar Dollars per Bart 0.000 0.054- 0.040 0.042- 0036- 0.030- 0024- 0.018 0.012 0.000 0 000- Quantity of Baht (bitions) 10
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Using information from problems 3 and 4, suppose that the central bank of Mexico has 200 bln dollars of foreign reserves just before the financial crisis began. If the central bank wants to keep the exchange rate at the level described in problem 4, it can do so for _____ weeks before it runs out of reserves (provided supply and demand curves do not change). Question 3 and 4 attached for your information:)
Use the money market and FX diagrams to answer the following questions. This question considers the relationship between the Indian rupee (Rs) and the U.S. dollar ($). The exchange rate is in rupees per dollar, ERs/$. On all graphs, label the initial equilibrium point A. a. Illustrate how a permanent increase in India’s money supply affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. b. By plotting them on a chart with time on the horizontal axis, illustrate how each of the following variables changes over time (for India): nominal money supply MIN, price level PIN, real money supply MIN/PIN, interest rate iRs, and the exchange rate ERs/$. c. Using your previous analysis, state how each of the following variables changes in the short run (increase/decrease/no change): India’s interest rate iRs, ERs/$, expected exchange rate EeRs/$, and price level PIN. d. Using your previous analysis, state how each of the…
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
The financial account balance of the Canadian balance of payments decreases in all of the following cases except one. Which? Please choose an answer: at. Decrease in international reserves held by the Bank of Canada; b. Increase in Canadian direct investment in Mexico. vs. Increase in foreign bonds held by Canadians; d. Decrease in American direct investment in Canada; e. Decrease in Canadian bonds held by non-residents of Canada;
D3) . If the actual exchange rate for the euro value of the British pound is less than the exchange rate that would satisfy absolute PPP, which of the currencies is overvalued and which is undervalued? Why?
For an investment in a foreign-currency-denominated financial asset, which of the followings is/are true? * The overall return to such an investment comes only from the return on the asset itself. The overall return to such an investment comes only from changes in the exchange-rate value of the foreign currency The overall return to such an investment comes from both the return on the asset itself and changes in the exchange-rate value of the foreign currency The value of investment (in terms of home currency) increases If the foreign currency value increases relative to my own currency. Both c and d Explain with no plagiarism
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).

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