(1-4) Assume that consumers all around the worldonly consume Big Macs at MacDonald's. AnAmerican tourist found that 50 USD can purchase30 Big Macs in India, but the same amount ofmoney can only purchase 25 Big Macs in China.The real exchange rate between China and India isA) 1 unit of consumption goods in India = 5/6 unitof consumption goods in China B) 1 unit ofconsumption goods in China = 5/6 unit ofconsumption goods in India C) 1 unit ofconsumption goods in India = 2 unit ofconsumption goods in China D) 1 unit ofconsumption goods in India = 1/2 unit ofconsumption goods in China

The objective of the question is to determine the real exchange rate between China and India based…

Answered: (1-4) Assume that consumers all around…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

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If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
Does a higher rate of return in a nations economy, all other things being equal, affect the exchange rate of its currency? If so, how?
Q.1.11 What is a foreign exchange rate? (a) The rate at which the currency of one country trades for the goods ofanother country.(b) The rate at which one country’s goods trade for those of anothercountry.(c) The rate at which currencies of different countries are exchanged.(d) The rate at which one country’s currency trades for gold provided byanother country.Q.1.12 As a result of more Americans visiting South Africa, we can expect, ceteris paribus:(a) an appreciation of the rand relative to the dollar.(b) a depreciation of the rand relative to the dollar.(c) an appreciation of the dollar relative to the rand.(d) that it will cost South Africans more to visit the United States.Q.1.13 What is a tariff? (a) A form of subsidy.(b) A tax on imported goods.(c) A tax on foreign property.(d) A form of quota.
2. Determining long-term exchange rates Consider two countries, the United States and Japan, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in Japan. The following graph shows the supply and demand for the Japanese yen in the United States before the change in productivity. The vertical axis is the exchange rate of the yen in terms of the doliar, and the horizontal axis is the quantity of yen. Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther EXCHANGE RATE (Dolars per yen Supply Demand QUANTITY (Millions of yer) As a result of the change in productivity, the U.S. dollar appreciates depreciates Demand Supply
6. In the exchange rate model in Example 7.2, supposethe company continues to manufacture its product inthe United States, but now it sells its product in theUnited States, the United Kingdom, and possibly othercountries. The company can independently set its pricein each country where it sells. For example, the pricecould be $150 in the United States and £110 in theUnited Kingdom. You can assume that the demandfunction in each country is of the constant elasticityform, each with its own parameters. The question iswhether the company can use Solver independently ineach country to find the optimal price in this country.(You should be able to answer this question withoutactually running any Solver model(s), but you mightwant to experiment, just to verify your reasoning.)
Consider a basket of consumer goods that costs $60 in the United States. The same basket of goods costs NOK 40 in Norway. Holding constant the cost of the basket in each country, compute the real exchange rates that would result from the two nominal exchange rates in the following table. Cost of Basket in U.S. (Dollars) 60 60 Cost of Basket in Norway (Kroner) 40 40 Nominal Exchange Rate (Kroner per dollar) 3.00 2.00 Real Exchange Rate (Baskets of Norwegian goods per basket of U.S. goods)
Give typing answer with explanation and conclusion Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. Initially, the supply curve for USD is 100 + eN bln dollars per week and the demand curve is 140 - eN bln dollars per week. There is a financial crisis in Mexico and the government fears that it may lead to capital outflows that would make the crisis even worse. They decide that if Mexican Peso depreciates by more than 20% the central bank will step in and fix the exchange rate. As the crisis unfolds the demand for the U.S. dollars increases to 142 - eN and the supply of dollars falls to 99 + eN. How should the central bank of Mexico react to this change?
What happens if there is a shortage or a surplus of Canadian dollars in the foreign exchange market? *** If a shortage of Canadian dollars occurs in the foreign exchange market, the and the exchange rate A O A. quantity of Canadian dollars demanded increases and the quantity of Canadian dollars supplied decreases; falls OB. demand for Canadian dollars increases and the supply of Canadian dollars decreases; rises OC. quantity of Canadian dollars demanded decreases and the quantity of Canadian dollars supplied increases; COLL 120- 110 100+ 90- 80- 70- Exchange rate (U.S. cents per Canadian dollar) S 60+ D
Suppose that the euro is trading at $1.10 per euro in the foreign exchange market. Next, suppose that the exchange rate falls to $0.73 per euro, due to falling Interest rates In the eurozone. The followIng graph shows the supply and demand curves for dollars In the forelgn exchange market. On the following grah, shift ether the supply curve for dollars or the demand curve for dollars to reflect the tnfluence of "carry trade" (In isolation from other factors that may affect the exchange rate) on the exchange rate for dollars. (Hint: Carefully consider whtch price is measured on the vertical axts and which currency Is being measared on the hortzontal axis.) O dalas Dalas QUANTITY (dolars) PRICE OF DOLLARS (euros per dollar)
1. Illustrate through a graph the following and explain each graph:A. Use the foreign exchange market (Philippine pesos in the vertical axis, quantity of US dollars in thehorizontal axis, demand curve and supply curve of US dollars) to show the effect of the following onthe equilibrium exchange rate (one graph each of i and ii and assume other factors constant): i.) increase in foreign interest ratesii.) increased preference for Philippine products by foreigners. B. Illustrate using the AD-AS model how an increase in the exchange rate or depreciation of the peso willaffect real GDP and price level in the domestic economy (other factors constant).C. Use the loanable funds market and illustrate graphically how an increase in net capital outflow willaffect domestic interest rates and investment. Briefly explain your illustration.
change rate $1.75 1.50 1.25 1.00 200 500 S d 700 900 950 1,000 S D₂ Quantity of euros traded (millions per day) 17) Refer to Figure 30-8. The equilibrium exchange rate is at A $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. At the pegged exchange rate A) there is a shortage of euros equal to 200 million. B) there is a surplus of euros equal to 700 million. Othere is a shortage of euros equal to 500 million. D) there is a surplus of euros equal to 300 million.
2. Determining long-term exchange rates Consider two countries, the United States and Japan, that trade with each other. Suppose that the productivity growth in the United States accelerates, but it remains the same in Japan. The following graph shows the supply and demand for the Japanese yen in the United States before the change in productivity. The vertical axis is the exchange rate of the yen in terms of the dollar, and the horizontal axis is the quantity of yen. Show how the change in productivity affects the equilibrium exchange rate by shifting one or both of the curves on the graph. Note: Select and drag one or both of the curves to the desired position. Curves will snap into position, so if you try to move a curve and it snaps back to its original position, just drag it a little farther. Supply Demand Supply Demand EXCHANGE RATE (Dollars per yer

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