Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 20, Problem 6P
To determine
The difference between fixed and flexible exchange rate and the governmental measures to maintain fixed exchange rate.
Concept Introduction:
The method by which the currency of a country is regulated by its authority in accordance with other countries currencies and foreign exchange markets is known as the Exchange rate regime. The exchange rates are generally classified into fixed exchange rate and flexible exchange rate.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
(2)
Why do we need foreign
exchange? Write a brief note on the
differences between fixed and flexible
exchange rate systems by describing
the concepts of appreciation,
depreciation, revaluation and
devaluation of currency. Give some
reasons in a short note that why the
country goes for fixed exchange rate
system?
18
18
Chapter 20 Solutions
Econ Micro (book Only)
Knowledge Booster
Similar questions
- What is the foreign exchange market?arrow_forwardEuro area Norway United Kingdom Poland China Local Price: (Foreign currency) 4.08 42.00 3.29 10.80 21.00 Actual Exchange Rate (Dollars per unit of foreign currency) 1.12 0.12 1.25 0.26 0.14 PPP Exchange Rate (U.S. Dollars per British pound) Source: "The Big Mac Index, Our Interactive Currency Comparison Tool, The Economist, last modified January 10, 2019, accessed September 27, 2019, https://www.economist.com/news/2019/07/10/the-big-mac-index. - Dollar Price (Dollars) Purchasing-power parity (PPP) theory states that exchange rates would need to equalize the prices of goods in any two countries. For the dollar price of a Big Mac to be the same in both countries, a U.S. citizen would need to be able to convert $5.74 into exactly GBP 3.29. To find the exchange rate at which hamburger purchasing power is the same in both countries, divide the price in the United States by price in the United Kingdom: $5.76 GBP 3.29 $1.74 per pound 4.11 2.81 2.94 4.57 5.04 Exporting Big Macs from the Euro…arrow_forwardHow much is the difference between the cross-exchange rates for Rupees (India) and Euro (europe) Show any calculations. Explain the reason for that difference.arrow_forward
- eBook Print References Consider the data in the table below: Nominal Exchange Rates for the U.S. Dollar yen Foreign currency/0.5. U.S. dollars/foreign Country United Kingdom (pound) Canada (Canadian dollar) Mexico (peso) Japan (yen) European Union (euro) a. Calculate the nominal exchange rate between the Mexican peso and the Japanese yen. Express in two ways. Instructions: Enter your responses rounded to three decimal places. One peso = peso dollar 0.612 0.968 11.654 81.126 0.698 peso. currency 1.633 One yen b. Suppose the peso appreciates by 20 percent against the dollar while the value of the yen against the dollar remains unchanged. Instructions: Enter your responses rounded to three decimal places. One peso yen One yen 1.033 0.086 0.012 1.433arrow_forwardQuestion 1 Draw an appropriate curve with an exchange rate (Euro/$) on the Y-axis and the quantity of dollars on the X-axis. Explain how the following factors affect the dollar's exchange rate under a flexible exchange rate system. (i) An increase in the interest rate in the United States. (ii) Inflation happens in the United States.arrow_forward7. Balance of payments and the foreign exchange market The following graph shows the market for euros, which is initially in equilibrium. Suppose an economic downturn in the United States leads to a drop in American incomes, causing imports from Europe to decline. On the graph, illustrate the effect of an economic downturn on the market for euros by shifting the appropriate curve or curves. ? EXCHANGE RATE (Dollars per euro) 2.00 1.75 1.50 1.25 1.00 0.75 0.50 0.25 0 1 2 Supply Demand QUANTITY OF EUROS (Billions) 7 8 Demand Supply Flexible exchange rates Lower interest rates by way of monetary policy Reduce income taxes in the United States Sell U.S. euro reserves in the foreign exchange market Fixed exchange rates On the graph, use the purple point (diamond symbol) to indicate the new equilibrium exchange rate and quantity under a system of flexible exchange rates. Under a system of flexible exchange rates, the dollar will until the foreign exchange market reaches an equilibrium…arrow_forward
- Using the table below, Exchange Rates US dollar (S) / per currency Country (currency) France (Euro) Indonesia (Rupiah) Uruguay (Peso) 0.25 0.8 2.5 A dryer produced in the U.S. costs $500. determine the dryer's cost in terms of each country's currency? 3. France 4. Indonesia 5. Uruguay ROULATEarrow_forwardWhat is the relation between exchange rate and balance of payments . -Appreciated currency -Depreciated currencyarrow_forward8. At the end of June 21, the exchange rate between the US Dollar (USD) and the Canadian Dollar (CAD) was 1.2 CAD for 1 USD. Today is about 1.37. What is the likely impact on trade between the US and Canada? (a) Zero, since we do not like Canadian products (b) We should have observed a decline in US NX with Canada (c) We should have observed an increase in US NX with Canada (d) We should have observed NX = 0 with Canadaarrow_forward
- 5. In a few sentences, explain the difference between a fixed exchange rate and a flexible exchange rate. What are the basic advantages and disadvantages of each? (4 points)arrow_forward1-Purchasing Power Parity (PPP) theory refers to a. The concept that the same goods should sell for the same price across countries after exchange rates are taken into account b. The concept that interest rates across countries will eventually be the same c. The natural offsetting relationship provided by costs and revenues in similar market environments d. The orderly relationship between spot and forward currency exchange rates and the rates of interest between countriesarrow_forwardFill in the blank If next week the value of the Dollar to the Yen becomes $1/¥162 then the________and the________and so the nominal exchange rate______ (we are the U.S.)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou...EconomicsISBN:9781305506725Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...EconomicsISBN:9781305506756Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. MacphersonPublisher:Cengage Learning
Principles of Economics 2eEconomicsISBN:9781947172364Author:Steven A. Greenlaw; David ShapiroPublisher:OpenStax
Economics: Private and Public Choice (MindTap Cou...
Economics
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Macroeconomics: Private and Public Choice (MindTa...
Economics
ISBN:9781305506756
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:Cengage Learning
Principles of Economics 2e
Economics
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:OpenStax