Using information from problem 3, suppose that the financial crisis worsens and now the supply curve for USD is 91+ e. bln dollars per week and the demand curve is bln dollars per week. The central bank still commits to its pledge to support the exchange rate if Peso depreciates by over 20% from the original level (more 155 - e specifically, in this case the fixed exchange rate will be 20% higher than the original level). To maintain the fixed exchange rate, the central bank will have to spend billion dollars of foreign exchange reserves per week. Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%". If your answer is a negative number, type a dash in front of your answer, i.e, "-999.99".

Using information from problem 3, suppose that the financial crisis worsens and now the supply curve for USD is 91+ e. bln dollars per week and the demand curve is bln dollars per week. The central bank still commits to its pledge to support the exchange rate if Peso depreciates by over 20% from the original level (more 155 - e specifically, in this case the fixed exchange rate will be 20% higher than the original level). To maintain the fixed exchange rate, the central bank will have to spend billion dollars of foreign exchange reserves per week. Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%". If your answer is a negative number, type a dash in front of your answer, i.e, "-999.99".

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter19: International Finance And The Foreign Exchange Market

Section: Chapter Questions

Problem 5CQ

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a) Using the following information, determine each one of the theoretical Exchange Rates (E.R.) according to International Fisher Effect. b) Show how Money Market Arbitrage could be done assuming that the loan is 1,000 units of the currency of the country where the loan is contracted. Determine the profit in the currency in which the loan was contracted. ΜARKET ΜARKET E.R. E.R. COUNTRY CURRENCY INTEREST Dec-01 Dec-02 Dec-02 Mexico MXP 12 % 19.56 20.15 Turkey TRY (Lira) 6 % 5.9419 6.07673 Australia AUD 4 % 1.7759 1.81183 Jаpan JPY 8 % 105.866 113.978 United GBP 5 % 0.5991 0.617849 Kingdom (UK) South Korea KRW (Won) 9% 1,658.62 1,793.37 Canada CAD 5 % 1.3736 1.4942 U.S.A.. USD 3%
Give typing answer with explanation and conclusion Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. Initially, the supply curve for USD is 100 + eN bln dollars per week and the demand curve is 140 - eN bln dollars per week. There is a financial crisis in Mexico and the government fears that it may lead to capital outflows that would make the crisis even worse. They decide that if Mexican Peso depreciates by more than 20% the central bank will step in and fix the exchange rate. As the crisis unfolds the demand for the U.S. dollars increases to 142 - eN and the supply of dollars falls to 99 + eN. How should the central bank of Mexico react to this change?
Please answer intuitively and completely please
(a) Suppose that you live in Korea. Thus, the won is a domestic cur- rency, while the dollar is a foreign currency. Assume that the won interest rate is 5% and the dollar interest rate is 2%. The current exchange rate is W1,000 per dollar. Answer the following questions: a. The won is expected to depreciate against the dollar. Therefore, the expected exchange rate will be W1,030 per dollar a year later. If you are a holder of dollar deposits, what should you do? b. Experts believe that the expected exchange rate has been mis- calculated. Given the interest rates and the current exchange rate, find the expected exchange rate that satisfies the equilib- rium condition for the foreign exchange market today.
A big Mac costs $3.35 in the U.S. and 31 Pesos in Mexico. The current exchange rate is $1 buys 11 Pesos. Then according to purchasing power parity, we can predict that the U.S. dollar should over time, and in order for ppp to hold we need Et = %3D O appreciate; 10.11 O appreciate; 9.25 O depreciate; 10.11 O depreciate; 9.25
Assume Switzerland has a one-year interest rate of 3% and that of Ghana is 16%. If the International Fisher Effect (IFE)holds, what would you forecast for the Swiss franc exchange rate with respect with the cedi be for a one-year period? Assume that the initial exchange rate is 5000cedis to a Swiss franc.
The dollar appreciated by 25% and now buys 100 yenThat would give you the old buying power at 80 yen.And that would mean that the yen depreciated by 20%.And the rate of change of the exchange rate is also -20%. Find the rate of change of the direct exchange rate of the yen in the US.
Give typing answer with explanation and conclusion
3. In which country would you save if the nominal interest rate equals 4% in the U.S. and 1% in Germany, the current dollar-Euro exchange rate (E$/ €) is equal to 1.2 and your expected exchange rate one year from now (Ee$/ €) equals 1.25.
Question 10 a b and c Assume that there is a free-floating exchange rate. Will the following cause sterling toappreciate or depreciate relative to other currencies? In each case, you should considerwhether there is a shift in the demand or supply curves of sterling (or both) and whichway the curve(s) shift(s). You may assume that the impacts are ceteris paribus, that is,everything else remains the same. Illustrate your answers and give a short explanation interms of currency supply and demand. (a) UK imports increase. (b) UK interest rates rise relative to those abroad.(c) The UK experiences lower inflation than other countries, but with no change in interestrates.