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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The following is a graph of an index from 4/9/2018-7/3/018 that tracks the movement of 25 emerging market currencies relative to the U.S. dollar. The currencies include the Russian ruble, Mexican peso, Brazilian real, Chinese Yuan, Indian Rupee, etc. The graph illustrates a steady appreciation of the dollar against these 25 currencies: Apr 9, 2018 Apr 23, 2018 May 7, 2018 May 21, 2018 Jun 4, 2018 Jun 18, 2018 Jul 2, 2018 1,700.00 1,680.00 1,660.00 1,640.00 1,621.99 Question: In the short-run, where firms in those emerging markets can't adjust their purchasing habits with the U.S., what is likely to happen to the price level? The price level and the inflation rate is likely to decline because imports from the U.S. are going to become much cheaper. This is due to the fact that the dollar has become much cheaper for these emerging markets. The price level is likely to fall because exports will increase dramatically for these countries. This is due to the fact that movements in a country's…
The nominal exchange rate is the price of one currency in terms of another currency. A nominal exchange rate specifies how many units of one country's currency are needed to buy one unit of another country's currency. Suppose the following table presents nominal exchange rate data for June 13, 2019, in terms of U.S. dollars per unit of foreign currency. Use the information in the table to answer the questions that follow. Foreign Currency Brazilian real (BRL) Canadian dollar (CAD) Euro (EUR) Japanese yen (JPY) Mexican peso (MXN) United Kingdom pound (GBP) Cost of One Unit of Foreign Currency (Dollars) 0.4755 0.8666 1.2151 0.008538 0.0942 1.7552 Suppose that on June 13, 2019, an antique woven rug handmade in the United Kingdom is priced at GBP 570. The approximate U.S. dollar price of the rug would be If the nominal exchange rate for the U.S. dollar-Mexican peso falls from $0.0942 to $0.07065 per Mexican peso, the Mexican peso value, or " relative to the U.S. dollar. in
Use the money market and FX diagrams to answer the following questions. This question considers the relationship between the Indian rupee (Rs) and the U.S. dollar ($). 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…
There is trade between the U.S. (domestic country) and Great Britain (foreign country) and the quantity of pounds supplied is positively related to the exchange rate. The exchange rate is defined as the domestic currency price of the foreign currency, i.e., dollars per pound. Using clearly labeled graphs of demand for and supply of the foreign currency, show and explain what will happen to: (i) the demand for pounds and/or; (ii) the supply of pounds; and (iii) the value of the dollar against the pound as a result of each one of the following changes. (a) a decrease in tariffs in the Great Britain. (b) a decrease in prices of goods produced in China. Both the U.S. and Great Britain trade with China. (c) a decrease in interest rates in the U.S
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EXCHANGE RATE (Dollars per euro) The following graph shows the short-run supply schedule (S,) and demand schedule (D) for the euro. S, denotes the long-run supply schedule of euros. The initial equilibrium exchange rate is $1.20 per euro. Suppose that the demand for euros increases to D,. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note: Dashed drop lines will automatically extend to both axes. The following graph shows the short-run supply schedule (So) and demand schedule (Do) for the euro. Si denotes the long-run supply schedule of euros. The initial equilibrium exchange rate is $1.20 per euro. Suppose that the demand for euros increases to D1. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note:…
Assume that you are studying exchange rates between India and the US. Assume that the equilibrium exchange rate in India is 76 Indian rupees per US dollar. Now suppose that the inflation rate falls in India. Which of the following choices shows a change we would expect to see in the Indian forex market? The demand for the US dollar would rise, leading to a depreciation of the Indian rupee. The demand for the Indian rupee would increase leading to an appreciation of the US dollar. The supply of the Indian rupee would rise leading to an appreciation of the Indian rupee. The supply of the US dollar would rise leading to an appreciation of the Indian rupee
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