Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 20, Problem 7P
To determine
The managed float system and its benefits over the freely floating exchange rate system.
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 Exchange rate regime. Many standards of exchange rates have prevailed thus far in the world economy such as gold standard, Bretton-Wood standard and currently the managed float standard.
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Students have asked these similar questions
The nominal exchange rate of the Australian dollar is 0.67. The CPI in the US is 300 and the same basket costs 430 in Australia.
(a) What can you say about the purchasing power parity holding for Australia? Show calculation.
Answer: 0.96
(b) The nominal Australian GDP is $1.5 trillion. Find Australia’s purchasing power parity GDP. Which one is more relevant for most purposes? What is the other one used for?
Answer:1.56
On June 23, 2016, citizens of the United Kingdom voted in favor of a referendum to leave the European Union. The table below shows
the exchange rate between the U.S. dollar and the British pound 4 months before and 4 months after the vote. Complete the table,
giving all answers to three decimals.
Date
February 23, 2016
June 23, 2016
October, 23, 2016
Exchange Rates Between the U.S. Dollar and the British Pound
Units of foreign currency you can Number of U.S. dollars required to buy one
buy with 1 U.S. dollar
unit of the foreign currency
0.713
0.671
1.22
currencies: China (Yuan); Euro Area (Euro);
Japan (Yen); Mexico (peso); UK (Pound
Sterling).
3.1. For each currency, plot on a separate
graph (so in total 5 separate graphs) the
monthly exchange rates and discuss if
(relative to the US dollar) they are freely
floating, moving within a band, or are fixed.
Use the data from ALL available years.
Chapter 20 Solutions
Econ Micro (book Only)
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Similar questions
- Why would a nation dollarize—that is, adopt another countrys currency instead of having its own?arrow_forwardWhat is the foreign exchange market?arrow_forward11. Suppose that apples were the only good produced in the United States and Mexico. In Mexico, apples sell for 12 pesos apiece. In the Unites states, apples sell for $0.50 apiece. a. According to the theory of Purchasing Power Parity, what is the equilibrium nominal exchange rate between the U.S. dollar and the Mexican peso? What would the real exchange rate between the U.S. and Mexico in that case? b. Suppose the price of apples rises at a rate of 3% per vear in the U.S., but at a rate of 12% per year in Mexico. According to PPP, by how much should we expect the nominal U.S dollar/Mexican peso exchange rate to change in the course of 1 year (up, or down, and by what %)? c. Starting at the exchange rate you calculated in (a), and assuming the rates of inflation remain the same as in (b), what nominal exchange rate would you expect in 3 years?arrow_forward
- Exports of goods and services 1,872 Imports of goods and services 2,375 Net unilateral transfers -99 Net Investment Income 170 Capital Account -7 Net US acquisition of financial assets 958 Net US incurrence of liabilities 1,391 Net financial derivatives -14 Based on the table above, the balance on the financial account is Group of answer choices 454 447 -14 -447arrow_forward2. The Table gives some information about Canada's international transactions in 2010. Item Billions of dollars. Imports of goods and services Net foreign investment in Canada Exports of goods and services. Net interest income. Net transfers Statistical discrepancy 508 54 476 16 (-3) 1 (a) Calculate the balance on the three balance of payments accounts. (b) Was Canada a net borrower or a net lender in 2010? Explain your answer.arrow_forwardQuestion 29 If the exchange rate between the Japanese yen and the U.S. dollar changes from 136.16 to 136.61 yen per dollar, then the yen has_ relative to the dollar and Japanese goods will become in the United States, everything else held constant. Select one: A appreciated; more expensive B. appreciated; cheaper C. depreciated; more expensive D. depreciated; cheaperarrow_forward
- (A). Other things equal, how would you expect the following shifts to affect a country's real exchange rate against foreign currencies?• The overall level of spending doesn't change, but domestic residents decide to spend more of their income on non traded products and less on tradables.• Foreign residents shift their demand away from their own goods and towards the home country's exports.arrow_forward21. What does Foreign Exchange mean? Why do we see currency fluctuations?arrow_forwardI want need more explanation..arrow_forward
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