Managerial Economics: A Problem Solving Approach
5th Edition
ISBN: 9781337106665
Author: Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher: Cengage Learning
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Chapter 11, Problem 7MC
To determine
Increasing interest rate.
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If there is a decrease in the desire of foreigners to purchase goods and services from the United States and a lower desire to invest in U.S. banks and businesses, then how would this affect the U.S. foreign exchange market?
A. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would depreciate.
B. The equilibrium quantity of foreign currency would decrease and the U.S. dollar would appreciate.
C. The equilibrium quantity of foreign currency would increase and the U.S. dollar would depreciate.
D. The equilibrium quantity of foreign currency would increase and the U.S. dollar would appreciate.
Someone please answer this questionIf international speculators lose confidence in foreign economies and want to move some of their wealth into the U.S. economy, then in the short run there is
A. a decrease in the value of the U.S. dollar in foreign exchange markets, a lower level of U.S. output and a higher U.S. price level.
B. an increase in the value of the U.S. dollar in foreign exchange markets, a lower level of U.S. output and a lower U.S. price level.
C. an increase in the value of the U.S. dollar in foreign exchange markets, a higher level of U.S. output and a higher U.S. price level.
D. a decrease in the value of the U.S. dollar in foreign exchange markets, a lower level of U.S. output and a lower U.S. price level.
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
Chapter 11 Solutions
Managerial Economics: A Problem Solving Approach
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- Suppose the three-month interest rate in Europe is 2 percent, but the three-month interest rate in the United States is 3 percent. The spot rate of dollar is 0.70 euro = $1, but three-month forward rate is 1 euro= $1.50. Based on this information what can you predict about the foreign exchange market? A. Spot price of dollar may appreciate. B. Spot price of euro may fall. C. European interest rates will certainly fall. D. Forward price of dollar may risearrow_forwardSarah Shetty in Milan. Sarah Shetty lives in Milan, Italy. She can buy a U.S. dollar for EUR0.9067. Alex North, living in Chicago, can buy a euro for USD1.1236. What is the foreign exchange rate between the dollar and the euro? a. The foreign exchange rate between the dollar and the euro in Milan is $ __/€. b. The foreign exchange rate between the euro and the dollar in Chicago is $ __/€.arrow_forwardWhat does it mean to say that the U.S. dollar has depreciated in value in relation to the Mexican peso? What does it mean to say that the Mexican peso has appreciated in value relative to the U.S. dollar?arrow_forward
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- 12. Use the Foreign Exchange market for British pounds to answer the following. Suppose that the British demand for US goods increases. The result is that: A) the demand for pounds increases. B) the demand for pounds decreases. C) the supply of pounds decreases. D) the supply of pounds increases. 13. Use the Foreign Exchange market for British pounds to answer the following. Suppose that the British demand for US goods decreases. The result under a flexible exchange rate regime is that: A) the demand for pounds increases. B) the demand for pounds decreases. C) the $/£ exchange rate decreases. D) the $/£ exchange rate increases.arrow_forward1. The principal function of the foreign exchange market is the transfer of funds, thus purchasing power, from one nation and currency to another. 2. If it takes 116.57 yen to buy one dollar, it takes $.0085785 to buy one yen. 3. Purchasing-power parity theory postulates that the change in the exchange rate between two currencies is proportional to the change in the ratio in the two countries' general price levels. 4. The price-specie-flow adjustment mechanism operates by the deficit nation losing gold and experiencing a reduction in its money supply. 5. Monetary policy is very effective under a fixed exchange rate policy. True or Falaearrow_forward6arrow_forward
- If people expect the British pound to appreciate versus the dollar over the coming year, they will ____, and the pound will____. The US dollar will_____ versus the British pound.A. sell pounds in a year, depreciate in a year, appreciate in a year B. buy pounds today, appreciate today, depreciate today C. buy pounds in a year, appreciate in a year, depreciate in a year D. sell pounds today, depreciate today, appreciate todayarrow_forwardSuppose that yesterday, the U.S. dollar was trading on the foreign exchange market at 0.75 eurosper U.S. dollar and today the U.S. dollar is trading at 0.80 euros per U.S. dollar. Which of the twocurrencies (the U.S. dollar or the euro) has appreciated and which has depreciated today?b) Suppose that the exchange rate for the Mexican peso fell from 15 pesos per U.S. dollar to 10 pesosper U.S. dollar. What is the effect of this change on the quantity of U.S. dollars that people plan tobuy in the foreign exchange market?c) Suppose that the exchange rate rose from 80 yen per U.S. dollar to 90 yen per U.S. dollar. What isthe effect of this change on the quantity of U.S. dollars that people plan to sell in the foreignexchange market?arrow_forward3. Suppose that the nominal exchange rate of the dollar in terms of yen is ¥175/S. The price level in Japan is expected to grow by 5%. The price level in the United States is expected to grow by 2%. a. Find the exact currency movement for the dollar if the real exchange rate decreases by 1.7%. Make sure to show your work. b. Find the approximate currency movement for the dollar if the real exchange rate decreases by 1.7%. Make sure to show your work. c. How would your answers to parts (a) and (b) change if PPP were correct? Make sure to show your work.arrow_forward
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