ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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1. If Thalland wants to maintain a fixed exchange rate of 1 baht per euro, it should ___________ euros in the foreign exchange market. To be successful, this policy would have to ___________ euros by______ billion euros at any given exchange rate.
2. If investors believe the baht is going to be _________ as a result of the change in demand, a speculative attack may occur.
3. True or False: in the event of a successful speculative attack. Thai businesses tend to suffer because their foreign debt will now cost more to repay.
True
False
Transcribed Image Text:The following graph shows the market for euros in terms of the Thai baht. The market is initially in equilibrium at 1 baht per euro and 15 billion euros
traded per day. Suppose the baht falls in value, causing investors to sell their baht-denominated assets and to sell baht for euros in order to buy euro-
denominated assets. As a result, the demand for euros shifts to the right, from Do to D₁.
EXCHANGE RATE (Baht per euro)
20
18
14
12
1.0
0.8
0.5
0.4
02
0
0
3
I
I
I
Supply
Do
6 • 12 15 18 21
QUANTITY OF EUROS (Billions)
24 27 30
?
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