The figure below illustrates the market for Bahamian dollars, where the price of the Bahamian dollar is valued in U.S. dollars. Assume that the Bahamian government wants to peg its currency to the U.S. dollar at a 1:1 ratio (one U.S. dollar = one Bahamian dollar). But the current exchange rate is at 90 cents (10 cents below the official peg). What must the Bahamian central bank do to return to the $1 exchange rate A. It would need to reduce the demand for the Bahamlan dollar. B. It would need to reduce the supply of the Bahamian dollar. C. It would need to Increase the supply of the Bahamian dollar. D. It would need to Increase the demand for the Bahamlan dollar. Part 2 Suppose you are a U.S. student and are thinking about visiting the Bahamas for spring break. You would rather the central bank intervened ___ (before or after) spring break. Part 3 Suppose that currently, the exchange rate is 1 Bahamian dollar for 1 U.S. dollar. The price of a Big Mac is $5 in the United States and 3.00 in the Bahamas. If purchasing power parity (PPP) is held exactly, the exchange rate should be ___ Bahamian dollars per U.S. dollar (round your answer to two decimal places).
The figure below illustrates the market for Bahamian dollars, where the price of the Bahamian dollar is valued in U.S. dollars. Assume that the Bahamian government wants to peg its currency to the U.S. dollar at a 1:1 ratio (one U.S. dollar = one Bahamian dollar). But the current exchange rate is at 90 cents (10 cents below the official peg). What must the Bahamian central bank do to return to the $1 exchange rate A. It would need to reduce the demand for the Bahamlan dollar. B. It would need to reduce the supply of the Bahamian dollar. C. It would need to Increase the supply of the Bahamian dollar. D. It would need to Increase the demand for the Bahamlan dollar. Part 2 Suppose you are a U.S. student and are thinking about visiting the Bahamas for spring break. You would rather the central bank intervened ___ (before or after) spring break. Part 3 Suppose that currently, the exchange rate is 1 Bahamian dollar for 1 U.S. dollar. The price of a Big Mac is $5 in the United States and 3.00 in the Bahamas. If purchasing power parity (PPP) is held exactly, the exchange rate should be ___ Bahamian dollars per U.S. dollar (round your answer to two decimal places).
Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter11: Foreign Exchange, Trade, And Bubbles
Section: Chapter Questions
Problem 6MC
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Transcribed Image Text:The figure below illustrates the market for Bahamian dollars, where the price of the Bahamian dollar is
valued in U.S. dollars. Assume that the Bahamian government wants to peg its currency to the U.S. dollar at
a 1:1 ratio (one U.S. dollar = one Bahamian dollar). But the current exchange rate is at 90 cents (10 cents
below the official peg).
What must the Bahamian central bank do to return to the $1 exchange rate
A. It would need to reduce the demand for the Bahamlan dollar.
B. It would need to reduce the supply of the Bahamian dollar.
C. It would need to Increase the supply of the Bahamian dollar.
D. It would need to Increase the demand for the Bahamlan dollar.
Part 2
Suppose you are a U.S. student and are thinking about visiting the Bahamas for spring break. You would
rather the central bank intervened ___ (before or after) spring break.
Part 3
Suppose that currently, the exchange rate is 1 Bahamian dollar for 1 U.S. dollar. The price of a Big Mac is $5
in the United States and 3.00 in the Bahamas. If purchasing power parity (PPP) is held exactly, the
exchange rate should be ___ Bahamian dollars per U.S. dollar (round your answer to two decimal places).
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