Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Textbook Question
Chapter 29, Problem 1SCQ
How will a stronger euro affect the following economic agents?
- A British exporter to Germany.
- A Dutch tourist visiting Chile.
- A Greek bank investing in a Canadian government bond.
- A French exporter to Germany.
Expert Solution
To determine
(a)
Effect of stronger Euro on British exporter to Germany.
Answer to Problem 1SCQ
The British exporter will be benefited with stronger euro.
Explanation of Solution
The exporter of any country will be benefited when their currency depreciates. The reason being that the firm must pay their employees in their own currency whereas from export the firm is getting other country’s currency. The exporter will get extra currency when he exchanges foreign currency in to domestic currency.
Economics Concept Introduction
Introduction:
Pound sterling currency is used by Britishers and Germans use Euro as their currency. So, the exporter of Britain will get euros from their export business and later British exporter will require to convert euros in to pounds to meet their expenses at home country.
Expert Solution
To determine
(b)
Effect of stronger Euro on Dutch tourist.
Answer to Problem 1SCQ
Dutch tourist will be better off from the strong euros.
Explanation of Solution
Appreciation or strong euros means Dutch traveler will find cheaper to travel in Chile as a result Dutch tourist will enjoy less expensive vacation and he can stay in Chile for more days and enjoy better because he is getting extra pesos for their euros.
Economics Concept Introduction
Introduction:
The currency euro is used by Dutch while Pesos is used by Chile. Travelling in foreign country requires the traveler to exchange their domestic currency with the currency of the country where he is going to travel.
Expert Solution
To determine
(c)
Effect of stronger Euro on Greek Bank investing in Canadian government bonds.
Answer to Problem 1SCQ
Strong euro will benefit the Greek banks who are buying Canadian Government bonds.
Explanation of Solution
An increase in the value Euro means that more Canadian dollars can be bought for same Euro. As consequences, the Greek bank will find decrease in the cost of the Canadian Government bonds and as a result Greek bank will be able to buy more bonds.
Economics Concept Introduction
Introduction:
The Canadians use dollars as their currency and Greeks use euros. Increase in the value of euro means Canadian dollars become cheaper for Greek bank.
Expert Solution
To determine
(d)
Effect of stronger euro on French exporter to Germany.
Answer to Problem 1SCQ
The effect of stronger euros will be neutral in case of these two countries.
Explanation of Solution
Increase in euro means currency euro is costlier than other currency. In this case, the effect of euro will have no impact on the French exporter because both the countries, French and German, have same currency.
Economics Concept Introduction
Introduction:
In this case both the country using the same currency that is euros.
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Chapter 29 Solutions
Principles of Economics 2e
Ch. 29 - How will a stronger euro affect the following...Ch. 29 - Suppose that political unrest in Egypt leads...Ch. 29 - Suppose U.S. interest rates decline compared to...Ch. 29 - Suppose Argentina gets inflation under control and...Ch. 29 - This chapter has explained that one of the most...Ch. 29 - A booming economy can attract financial capital...Ch. 29 - How would a contractionary monetary policy affect...Ch. 29 - A central bank can allow its currency to fall...Ch. 29 - Is a country for which imports and exports...Ch. 29 - What is the foreign exchange market?
Ch. 29 - Describe some buyers and some sellers in the...Ch. 29 - What is the difference between foreign direct...Ch. 29 - What does it mean to hedge a financial...Ch. 29 - What does it mean to say that a currency...Ch. 29 - Does an expectation of a stronger exchange rate in...Ch. 29 - Does a higher rate of return in a nations economy,...Ch. 29 - Does a higher inflation rate in an economy, other...Ch. 29 - What is the purchasing power parity exchange rate?Ch. 29 - What are some of the reasons a central bank is...Ch. 29 - How can an unexpected fall in exchange rates...Ch. 29 - What is the difference between a floating exchange...Ch. 29 - List some advantages and disadvantages of the...Ch. 29 - Why would a nation dollarize—that is, adopt...Ch. 29 - Can you think of any major disadvantages to...Ch. 29 - If a countrys currency is expected to appreciate...Ch. 29 - Do you think that a country experiencing...Ch. 29 - Suppose a country has an overall balance of trade...Ch. 29 - We learned that changes in exchange rates and the...Ch. 29 - If a developing country needs foreign capital...Ch. 29 - Many developing countries, like Mexico, have...Ch. 29 - What would make a country decide to change from a...Ch. 29 - A British pound cost 2.00 in U.S. dollars in 2008,...
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