Economics (Book Only)
12th Edition
ISBN: 9781285738321
Author: Roger A. Arnold
Publisher: Cengage Learning
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Chapter 35.3, Problem 3ST
To determine
Check whether Country U’s dollar is overvalued or undervalued.
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Suppose that yesterday, the U.S. dollar-Japanese yen exchange rate was $1=¥0.553546. The price of one Japanese yen in terms of a U.S. dollar was ___ .
Suppose that today the U.S. dollar-Japanese yen exchange rate falls to $1=¥0.533585 for one dollar. This means that between yesterday and today, the U.S. dollar has ___ against the Japanese yen. The price of a Mexican peso in terms of the U.S. dollar is now ___ .
Answer the followings:
1. A depreciation of the dollar on the foreign exchange market would result in:
A) a decrease in the dollar prices paid by U.S. importers.
B) foreign holidays for U.S. residents to be less expensive.
C) a decrease in the demand for U.S. exports.
D) an increase in the foreign currency prices paid for U.S. exports.
2. The exchange rate for one U.S. dollar is 1.2 Euros and 1.5 British pounds. Exactly six months later, the
exchange rate for one U.S. dollar is 0.9 Euro and 1.7 British pounds. We can say:
A) the dollar has depreciated relative to both British pounds and Euros.
B) the dollar has appreciated relative to both British pounds and Euros.
C) the dollar has appreciated relative to Euros and depreciated relative to British pounds.
D) the dollar has appreciated relative to British pounds and depreciated relative to Euros.
3. The cost of a trip to New York, US, was $5000. Two weeks later, the US dollar appreciated against the British
pound. If the price of the…
Coffee grown in Guatemala is priced at 17 Guatemalan quetzal per pound (Guatemalan quetzal, or GTQ, is the currency
of Guatemala). Comparable coffee grown in the U.S. is priced at $8.40 per pound. One Guatemalan quetzal trades for $0.13 in the
foreign exchange market.
Find the real exchange rate from the perspective of the United States and from the perspective of Guatemala, and determine
which country's coffee is more competitively priced?
Instructions: Enter your responses rounded to two decimal places.
Real exchange rate from the perspective of the U.S. is
Real exchange rate from the perspective of Guatemala is
Coffee is more competitively priced in [Guatemala
V
Chapter 35 Solutions
Economics (Book Only)
Ch. 35.2 - Prob. 1STCh. 35.2 - Prob. 2STCh. 35.2 - Prob. 3STCh. 35.2 - Prob. 4STCh. 35.3 - Prob. 1STCh. 35.3 - Prob. 2STCh. 35.3 - Prob. 3STCh. 35.3 - Prob. 4STCh. 35 - Prob. 1VQPCh. 35 - Prob. 2VQP
Ch. 35 - Prob. 3VQPCh. 35 - Prob. 4VQPCh. 35 - Prob. 5VQPCh. 35 - Prob. 1QPCh. 35 - Prob. 2QPCh. 35 - Prob. 3QPCh. 35 - Prob. 4QPCh. 35 - Prob. 5QPCh. 35 - Prob. 6QPCh. 35 - Prob. 7QPCh. 35 - Prob. 8QPCh. 35 - Prob. 9QPCh. 35 - Prob. 10QPCh. 35 - Prob. 11QPCh. 35 - Prob. 12QPCh. 35 - Prob. 13QPCh. 35 - Prob. 14QPCh. 35 - Prob. 15QPCh. 35 - Prob. 16QPCh. 35 - Prob. 1WNGCh. 35 - Prob. 2WNGCh. 35 - Prob. 3WNGCh. 35 - Prob. 4WNGCh. 35 - Prob. 5WNG
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- The Big Mac index is used as a rough measure of purchasing power parity across countries. The Economist magazine recently included the Vietnamese dong in its calculation of the Big Mac index. A Big Mac costs $5.06 in the United States but only 60,368 dong or $2.66 in Vietnam (at the current exchange rate). What does this information suggest about the value of the real exchange rate of the U.S. dollar relative to the Vietnamese dong (treating the United States as the domestic economy, so the nominal exchange rate is expressed as dong per dollar)? Is the real exchange rate likely to be greater than or less than 1?arrow_forwardIf a country with floating exchange rates uses an expansionary monetary policy, the domestic interest rate: A) increases, demand for the domestic currency increases, supply of the domestic currency decreases, and the exchange rate increases. B) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the exchange rate decreases. C) falls, demand for the domestic currency remains unchanged, supply of the domestic currency increases, and the exchange rate decreases. D) falls, demand for the domestic currency decreases, supply of the domestic currency increases, and the effect on the exchange rate is ambiguous.arrow_forwardConsider that Britain is trying to maintain a fixed exchange rate with respect to the U.S. dollar. However, the present situation in the foreign exchange market is conducive for the British pound to appreciate with respect to the U.S. dollar. Which of the following interventions is most likely in this situation? The government of Britain should sell pounds and buy dollars. The government of Britain should do nothing, as a fixed rate cannot change. The government of Britain should buy pounds and sell dollars. The government of Britain should decrease the country's money supply.arrow_forward
- A decrease in Chinese demand for U.S. dollars over the past year has reduced the market equilibrium exchange rate of the dollar from 10 yuan per dollar to 6.5 yuan per dollar. Other things being equal, which of the following is a likely consequence of this kind of change in the exchange rate of the dollar? a. A higher price of exported U.S. products in Chinese for those paying in yuan, which leads to a deficit in the net export. b. A lower price for imported Chinese products in the U.S. for those paying in dollars, which leads to a surplus in the net export. c. A higher price for imported Chinese products in the U.S. for those paying in dollars, which leads to a deficit in the net export. d. Both (a) and (c)arrow_forwardSuppose the U.S.-EU exchange rate is $1.15 per Euro, the U.S. has 5% inflation, and the EU has 10% inflation. Under these conditions the real U.S.-EU exchange rate, rounded to the nearest cent, is approximately: $1.20 per Euro $1.10 per Euro $1.30 per Euro $1.09 per Euroarrow_forwardSuppose that the United States decides to fix the dollar-euro exchange rate. If the U.S. central bank observes that the quantity supplied of euros exceeds the quantity demanded of euros at the fixed exchange rate, to maintain the exchange rate, the U.S. central bank will A.) realize a decrease in its reserves of euros. B.) need to appreciate the dollar. C.) realize an increase in its reserves of euros. D.) need to reduce the domestic supply of dollars.arrow_forward
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