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 9MC
To determine
Increasing interest rate.
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The graph shows the demand curve for U.S. dollars.
Draw a new demand curve that shows the effect of an increase in the
world demand for U.S. exports. Label it.
A change in the expected future exchange rate changes the demand for U.S.
dollars and a change in the world demand for U.S. exports changes the
demand for U.S. dollars
A. today; in the future
B. in the future; today
C. in the future; in the future
D. today; today
160
140-
120-
100-
80-
60-
40+
Exchange rate (yen per U.S. dollar)
Do
1.3
1.5
1.6
1.7
1.4
Quantity (trillions of U.S. dollars per day)
>>> Draw only the objects specified in the question.
1.8
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.
If the exchange rate moves from $1 for one Euro to $1.50 for one Euro, then
Select one:
a.
it becomes more expensive for a European to buy a European product.
b.
it becomes more expensive for an American investor to save at an American bank.
c.
it becomes more expensive for an American to buy a Mexican product.
d.
it becomes more expensive for an American to buy a European product.
Chapter 11 Solutions
Managerial Economics: A Problem Solving Approach
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Similar questions
- Draw a demand for dollars curve. Label it D. Draw a supply of dollars curve . Label it S. Draw a point at the equilibrium quantity and exchange rate. Draw an arrow between the D and S curves that indicates a price at which there is a shortage of dollars. Label it When there is a shortage of dollars in the foreign exchange market, ------------. A. The demand for Japanese yen will increase so the foreign exchange market can move into equilibrium B. The supply of Japanese yen will increase so the foreign exchange market can move into equilibrium C. The forces of supply and demand pull the foreign exchange market into equilibrium D. Prices in the United States will fall relative to prices in Japan.arrow_forwardYou own a local company. In the past year, you successfully expanded your sales market into Europe, and you now have profits and cash denominated in euros. You want to convert the euros to your home country currency to repatriate the profits and pay taxes. You are a. not required to convert the euros to the home currency to pay taxes. b. a demander of the euro in the foreign exchange market. c. a supplier of your home country's currency in the foreign exchange market. d. a demander of your home country's currency in the foreign exchange market.arrow_forwardSuppose 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_forward
- Other things the same, if the exchange rate changes from .8 euros per dollar to .9 euros per dollar, what happen to U.S. dollar and U.S. goods?arrow_forwardThe graph shows the supply curve of Canadian dollars. Draw a new supply curve that shows the effect of a rise in the expected future exchange rate. Label it. A change in the expected future exchange rate changes the supply of Canadian dollars________, and a change in Canadian demand for imports changes the supply of Canadian dollars O A. today; today B. in the future; today C. today; in the future D. in the future; in the future 120 MacBook Pro 110 100- 90- 80- 70- Exchange rate (Canadian cents per Canadian dollar) Click the graph, choose a tool in the palette and follow the instructions to create your graph. So 70 80 90 100 10 20 30 40 50 60 Quantity (billions of Canadian dollars per day) >>> Draw only the objects specified in the question.arrow_forwardSuppose the cost of a car produced in the United States is $20,000. The current exchange rate is US$1 = €0.85. Instructions: Round your answers to two decimal places. a. What is the cost of the car in euros? b. Suppose the exchange rate changes to US$1= €0.75. What is the new euro cost of the car? € c. At the new exchange rate, the quantity of U.S. cars demanded by those holding euros will likely (Click to select) ✓ (Click to select) remain the same increase decreasearrow_forward
- 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.arrow_forwardA new country has been established on the moon and created a currency called cheesybits. Which of the following does not involve a foreign exchange transaction? OA) Luna lives on the moon and wants to travel to visit relatives in Japan. B) Han is visiting the moon and wants to eat at his favorite restaurant, the Moonglow Bar and Grill. C) Moonrock corporation needs new mining equipment that it buys from a manufacturer in Russia. D) Moonbeam Incorporated, the largest company on the moon, sells building products for houses on the moon.arrow_forwardSuppose that the exchange rate falls from 84 yen per U.S. dollar to 71 yen per U.S. dollar. What is the effect of this change on the quantity of U.S. dollars that people plan to sell in the foreign exchange market? The quantity of U.S. dollars that people plan to sell in the foreign exchange market A. decreases and the supply curve of U.S. dollars shifts leftward B. increases and the supply curve of U.S. dollars shifts rightward C. increases and a movement up along the supply curve for U.S. dollars occurs D. decreases and a movement down along the supply curve of U.S. dollars occursarrow_forward
- It is often believed that the value of the currency of some countries are too low, which gives the firms in those countries an unfair competitive advantage. Econometric evidence indicates that relative PPP does not hold in the short-run, while it does hold in the long-run. a. What does this imply for countries with a fixed exchange rate that is 'unfairly low'? b. Can a country maintain an 'unfair' competitive advantage in the long-run by somehow manipulating its exchange rate? Explain. c. Assume the UK and the US are the only countries in the world. Explain what will happen in the long run to the pound and the nominal interest rate in the UK as a result of a decrease in the expected inflation rate in the UK..arrow_forwardSuppose 55 percent of Mexico’s trade is with the United States, 20 percent of trade is with Canada, and the remainder of trade is with Brazil. Suppose also that the Mexican peso appreciates 20 percent against the U.S. dollar, depreciates 30 percent against the Canadian dollar, and depreciates 10 percent against the Brazilian real. By how much will Mexico’s trade-weight exchange rate appreciate or depreciate? Show your work.arrow_forwardSuppose the average price of a Big Mac in the United States is $3.50 while in Japan the average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for 100 yen, the purchasing power parity model of exchange rate determination suggests that: a. The yen is overvalued. b. The yen is undervalued. c. The price of a Big Mac in Japan will rise. d. The dollar will depreciate against the yen.arrow_forward
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