Macroeconomics
10th Edition
ISBN: 9780134896441
Author: ABEL, Andrew B., BERNANKE, Ben, CROUSHORE, Dean Darrell
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 2RQ
To determine
To Explain: The key types of exchange rate systems and the one that determines the values of major currency types
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
All of the following are factors that cause supply and demand for currencies to change EXCEPT:
A.
relative interest rates
B.
relative income levels
C.
relative GDP levels
D.
relative inflation rates
Distinguish between a nominal appreciation and a real appreciation of a currency.
What does it mean when the dollar appreciates compared to when the dollar depreciates?
Has the US dollar been relatively strong or weak over the past year?
How does the strength of the dollar affect exports and imports?
Knowledge Booster
Similar questions
- In mid-2006, a British pound sterling (the monetary unit in the United Kingdom) was worth 1.4 euros (the monetary unit in the European Union). If a U.S. dollar bought 0.55 pound sterling in 2006, what was the exchange rate between the U.S. dollar and the euro?arrow_forwardThe NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchange rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar. a. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative USdollar? Explain your answer and show the calculation. b. Do you think the price of a representativeness car, Mercedes Benz in different countriesprovides a valid test of purchasing power parity?arrow_forwardSuppose that the exchange rate between Great British pound and U.S. dollar is 0.78 pounds/dollar. The price index in the United States is 264 and the price index in Britain is 277. If the exchange rate and British price index both doubled, what would happen to the real exchange rate?arrow_forward
- In July 2018 Yi Gang, Governor of the People’s Bank of China, said fluctuations in the foreign exchange market were mainly due to factors like a stronger U.S. dollar and external uncertainties. How can fluctuations in the currency exchange rate affect a country’s economyarrow_forwardIf a French car costs 10,000 euros, a similar American car costs 15000 dollars, and a euro can buy 1.2 dollars. what is real exchange rates ( you may assume any currency as the “domestic currency”) If a French car costs 10,000 euros, a similar American car costs 15000 dollars, and a euro can buy 1.2 dollars. what is real exchange rates ( you may assume any currency as the “domestic currency”) ???arrow_forwardIn the last 4 years, the exchange rate Pound to Euro depreciated (decreased) to an average of 1.13 (from 1.30 before 2016). When citizens from the UK would go on holidays in a Euro zone country (e.g. Spain), would a lower exchange rate of 1.13(Sterling Pound to Euro) instead of an exchange rate of 1.30 (Pound to Euro) be of advantage or disadvantage for British tourists in Europe? Explain.arrow_forward
- Consider the exchange rate between the Moroccan dirham and the euro. Suppose the Moroccan government and the Eurozone governments agree to fix the exchange rate (ER) at 2.5 dirham per euro, as shown by the grey line on the following graph. Refer to the following graph when answering the questions that follow. EXCHANGE RATE (Dirham per euro) 4.0 3.5 1.0 0.5 0 0 2 4 12 QUANTITY OF EUROS (Billions) 6 8 10 Supply of Euros ER "Demand for Euros At the official dirham price of euros, there is a 14 At the official exchange rate of 2.5 dirham per euro, the euro is that Moroccans pay 16 ? and the Moroccan dirham is for European exports than they would with a free-floating exchange rate. of euros in the foreign exchange market. , which means Suppose the governments of the Eurozone and Morocco reevaluate their currencies so that their official exchange rate is now 1 dirham per 1 euro. This action results in of the euro.arrow_forwardInterest rates How do interest rates link money market and foreign exchange market? Which state body determines the value of the interest rate and what instruments are used to regulate it? How – through which macroeconomic channels do interest rates affect markets for goods and services?arrow_forwardSuppose that the exchange rate between Great British pound and U.S. dollar is 0.78 pounds/dollar. The price index in the United States is 264 and the price index in Britain is 277. What is the real exchange rate between pounds and dollars?arrow_forward
- In July 2018 Yi Gang, Governor of the People’s Bank ofChina, said the fluctuations in the foreign exchange market were mainly due to factors like stronger U.S. dollar andexternal uncertainties. How can fluctuations in currencyexchange rate affect your country’s economy?arrow_forwardThe following figure shows the Current Account Balance (similar to the Trade Balance) of Japan (black line) and China (red line). During their growth periods (1980s for Japan and 2000s for China), were these countries net savers or borrowers? What are some ways that the governments intervened in the foreign exchange market to keep their BOP from adjusting towards 0? 12.5 10.0 7.5 5.0 2.5 0.0 -5.0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Organization for Economic Co-operation and Development fred.stlouisfed.org US $, Sum Over Component Sub-periods/10000000O000arrow_forwardFill in the blank using the words: positive, negative, raise, lower, improving, deteriorating, depreciate, i, Y, appreciate, raising, lowering, contraction, expansion, increase, decrease, higher, lower. During the early-1990s, Mexico maintained an exchange rate peg against the U.S. dollar (assume the peg is hard). When President Zedillo took office in December 1994, he faced several challenges. A combination of the assassination of a presidential candidate and the rebellion in Chiapas had led to an increase in the expected future exchange rate, E (the market got worried that the exchange rate peg would be abandoned in the future). According to the IS-LM-FX model, an increase in Ee will the foreign return curve in the FX market. Under a floating exchange rate, this would cause the spot exchange rate to as investors shift deposits out of Mexico expecting a return on U.S. deposits. Of course, this cannot happen under a fixed exchange rate regime (hard peg), which means Banco de Mexico…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
