True of False and explain. If we set a fixed exchange rate below market equilibrium we will end up with a Balance of Payment surplus.

Draw a demand for dollars curve. Label it D. Draw a supply of dollars curve . Label it S. Draw a point at the equilibrium quantity and exchange rate. Draw an arrow between the D and S curves that indicates a price at which there is a shortage of dollars. Label it   When there is a shortage of dollars in the foreign exchange market, ------------. A. The demand for Japanese yen will increase so the foreign exchange market can move into equilibrium B. The supply of Japanese yen will increase so the foreign exchange market can move into equilibrium C. The forces of supply and demand pull the foreign exchange market into equilibrium D. Prices in the United States will fall relative to prices in Japan.

In the international trade, exchange rate might affect export and import. Explain briefly howthe exchange rate affect export and import of any country!

Pick a side: fixed or floating exchange rates. Present your reasons for the one you selected.