Suppose that there are only two countries in the world: Localia (which is us), that uses the "Localios" (LCL) as its currency, and Nearovia (our trading partner), which uses “Nearos" (NER) as its currency. For questions 1-3, assume that this exchange rate between the NER and the LCL is flexible. Now consider the Supply & Demand market for domestic Localios. Suppose also that the Central Bank cuts interest rates at home in Localia. 1. What would we expect to happen to the exchange rate for LCL as a result of this rate cut? Explain using the Supply and Demand Figure for LCL and explain why any movements of any of the curves occur. 2. Would this create a recessionary gap, inflationary gap, or neither in Localia? Explain using vour AD-AS Figure for Localia

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In our pretend world there are two countries - Chile and Switzerland - that are engaged in trade. The firm Switzerland Chocolates Express sells Boxes of chocolate (a good) in Chile. Each Box of Chocolates sells for 6500 Chilean pesos in Chile. In Switzerland, each box of chocolates 11 Swiss Franc to produce. Assume that the firm has 1 million boxes of chocolate to sell. How much money (in Swiss Franc) would the firm make (or lose) on the sale at the following exchange rates: Rate 1: 550 Pesos per Swiss Franc Rate 2: 0.0015 Swiss Franc Per Chilean Peso

Year 2014 2015 2016 US $ $1 $1 $1 British Pound  0.85 0.70 0.60         Based on the Exchange rates above, How might international trade be affected? A)It is cheaper for American to travel to EnglandB)The US will import more from EnglandC)England will export more to the USD)England will import more from the US

Ab 44  Economics  The following graph shows the market for euros, which is initially in equilibrium. Suppose an economic expansion in the United States leads to an increase in the incomes of American households, causing imports from Europe to rise.   On the graph, illustrate the effect of an economic expansion on the market for euros by shifting the appropriate curve or curves.

Suppose that Argentina's dollar-denominated external assets and liabilities are $10 billion and $100 billion, respectively, and its Argentine peso-denominated external assets are 70 billion pesos (P) and peso-denominated external liabilities are 50 billion pesos (P). Suppose further that Argentina fixes its exchange rate at P1.5 = $US1.   a) What is the peso value of Argentina's total external wealth? Is it a net debtor or creditor?   b) Suppose that Argentina changes its exchange rate to P2.3 = $US1. How does the external wealth of Argentina change when this occurs?

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U S foreign exchange intervention is sometimes done by an Excha U.S. foreign exchange intervention is sometimes done by an Exchange Stabilization Fund, or ESF (a branch of the Treasury Department), which manages a portfolio of U.S. government and foreign currency bonds. An ESF intervention to support the yen, for example, would take the form of a portfolio shift out of dollar and into yen assets. Show that ESF interventions are automatically sterilized and thus do not alter money supplies. How do ESF operations affect the foreign exchange risk premium? U S foreign exchange intervention is sometimes done by an Excha

Draw the exchange market where dollars trade for British Pounds, with the equilibrium exchange rate at $1.18 and the equilibrium total amount of Pounds traded at 10 million. a> Assume that people in Britain become pessimistic about visiting, buying from, or investing in the United States. How will this market be affected? (i.e., which curve(s) will shift, and in which direction?) b> What will happen to the equilibrium quantity of Pounds traded after the event in part a? What will happen to the equilibrium exchange rate?

1. Individual Problems 11-1 Suppose that the euro is trading at $1.85 per euro in the foreign exchange market. Next, suppose that the exchange rate falls to $1.11 per euro, due to falling interest rates in the eurozone. The following graph shows the supply and demand curves for euros in the foreign exchange market. On the following graph, shift either the supply curve for euros or the demand curve for euros to reflect the influence of “carry trade” (in isolation from other factors that may affect the exchange rate) on the exchange rate for euros. (Hint: Carefully consider which price is measured on the vertical axis and which currency is being measured on the horizontal axis.)