6. Changes in the foreign-exchange marketThe following questions focus on the exchange rate between the Malaysian ringgit and the Danish krone. Assume the exchange rate is flexible. The exchange rate is defined as the number of ringgit you must pay for one krone.Suppose an economic downturn in Denmark causes Danish incomes to decrease, while Malaysian incomes remain unchanged.Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal. Drag the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner.PRICE (Ringgit per krone)Supply of KronerDemand for KronerQUANTITY OF KRONERDemand for KronerSupply of Kroner?Suppose the real interest rates in Malaysia and Denmark are initially the same. Then the real interest rate in Denmark rises, while the real interestrate in Malaysia remains the same. This will cause the supply of kroner toand the demand for kroner tothe Malaysian ringgit torelative to the Danish krone.Iwhich causes Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps backto its original position, just drag it a little farther.PRICE (Ringgit per krone)Supply of KronerDemand for KronerQUANTITY OF KRONERThe decrease in Danish incomes causes the Danish krone totorelative to the Danish krone.Demand for KronerSupply of Kroner(?)relative to the Malaysian ringgit and causes the Malaysian ringgitSuppose the price level in Denmark rises by 7%, while the price level in Malaysia remains the same. That is, the inflation rate in Denmark is higherthan in Malaysia.

Foreign Exchange Market: It is market where individuals and institutions demand and supply for…

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Managerial Economics: A Problem Solving Approach

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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

Chapter2: The One Lesson Of Business

Section: Chapter Questions

Problem 9MC

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6. Changes in the foreign-exchange market

The following questions focus on the exchange rate between the Malaysian ringgit and the Danish krone. Assume the exchange rate is flexible. The exchange rate is defined as the number of ringgit you must pay for one krone.

Suppose an economic downturn in Denmark causes Danish incomes to decrease, while Malaysian incomes remain unchanged.

Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal.

Drag the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner.
PRICE (Ringgit per krone)
Supply of Kroner
Demand for Kroner
QUANTITY OF KRONER
Demand for Kroner
Supply of Kroner
?
Suppose the real interest rates in Malaysia and Denmark are initially the same. Then the real interest rate in Denmark rises, while the real interest
rate in Malaysia remains the same. This will cause the supply of kroner to
and the demand for kroner to
the Malaysian ringgit to
relative to the Danish krone.
I
which causes

Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back
to its original position, just drag it a little farther.
PRICE (Ringgit per krone)
Supply of Kroner
Demand for Kroner
QUANTITY OF KRONER
The decrease in Danish incomes causes the Danish krone to
to
relative to the Danish krone.
Demand for Kroner
Supply of Kroner
(?)
relative to the Malaysian ringgit and causes the Malaysian ringgit
Suppose the price level in Denmark rises by 7%, while the price level in Malaysia remains the same. That is, the inflation rate in Denmark is higher
than in Malaysia.

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