EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9780100605930
Author: Blinder
Publisher: YUZU
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Chapter 36, Problem 3TY
To determine
The effects of the given actions on the U.S. balance of payments if the exchange rates were floating.
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Travis takes two trips to Ecuador. On his first trip, he finds that one US dollar is worth 25000 Ecuadorian Sucre. On his return trip, he finds that the dollar is now worth 24000 Ecuadorian Sucre. What is a likely result of this change in exchange rates?
In the determination of currency prices and exchange rates, the market forces of supply and demand plays an insignificant role.
True
False
Fill in the blank. In the study of the global nature of doing business in a specific country, the floating exchange rate comes into play. A high value of the dollar means the dollar is trading for ________of a foreign currency than before.
Choose one answer.
less
equal to
more
considerably less
Chapter 36 Solutions
EBK ECONOMICS: PRINCIPLES AND POLICY
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- Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1. If foreign-exchange traders on one day want to exchange $60 million for pesos, to enforce the peg the Mexican government will need to come up witharrow_forwardPrices in Country A sharply rose due to a supply shortage and led to high levels of inflation in the economy. What effect is this price increase likely to have on domestic currency in the foreign exchange market? Country A's domestic currency will see an appreciation, in relation to currencies of other trading partners. Country A's domestic currency will see both appreciation and depreciation, in relation to currencies of other trading partners. Country A's domestic currency will see no change, in relation to currencies of other trading partners. Country A's domestic currency will see a depreciation, in relation to currencies of other trading partners. There is insufficient information to draw a conclusion.arrow_forwardSuppose Argentina gets inflation under control and the Argentine inflation rate decreases substantially. What would likely happen to the demand for Argentine pesos, the supply of Argentine pesos, and the peso/U.S. dollar exchange rate?arrow_forward
- Travis takes two trips to Ecuador. On his first trip, he finds that one US dollar is worth 25000 Ecuadorian Sucre. On his return trip, he finds that the dollar is now worth 24000 Ecuadorian Sucre. What is a likely result of this change in exchange rates? American exports to Ecuador decrease Ecuadorians will invest less in US American imports from Ecuador will increase American exports to Ecuador increasearrow_forwardIf the domestic prices for traded goods rose 40 percent over 10 years in China and 25 percent over those same 10 years in the United States, what would happen to a freely floating Chinese yuan/U.S. dollar exchange rate? Why?arrow_forwardExplain the relationship between the interest rate and the exchange rate in a country. Explain in terms of capital flows between countries and show what happens to a country's currency value in terms of another country's currency when interest rates differ between two countries. Explain as clearly as possible using country A and country B as your example.arrow_forward
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