Consider a period when, prior to euro entry, the central bank of Lithuania maintained an exchange rate band relative to the euro-at the time this was a prerequisite for joining the Eurozone. The rules said that Lithuania had to keep its exchange rate within ±15% of the central parity of 3.4528 litas per euro. Compute
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- The demand for Australian dollars in the foreign exchange market equals 14000 – 3000e and thesupply of Australian dollars in the foreign exchange market equals 2000 + 2000e, where e is thenominal exchange rate expressed in euros per Australian dollar. If the Australian dollar is fixed at 2euros per Australian dollar, then to maintain this fixed rate, what is the required change in theReserve Bank of Australia’s holdings of euros? 1increase by 4000 euros 2decrease by 2000 euros 3decrease by 4000 euros 4increase by 2000 eurosPurchasing-power parity holds between the nationsof Ectenia and Wiknam, where the only commodityis Spam.a. In 2020, a can of Spam costs 4 dollars in Ecteniaand 24 pesos in Wiknam. What is the exchange ratebetween Ectenian dollars and Wiknamian pesos?b. Over the next 20 years, inflation is expected to be3.5 percent per year in Ectenia and 7 percent peryear in Wiknam. If this inflation comes to pass,what will the price of Spam and the exchangerate be in 2040? (Hint: Recall the rule of 70 fromChapter 27.)c. Which of these two nations will likely have ahigher nominal interest rate? Why?d. A friend of yours suggests a get-rich-quickscheme: Borrow from the nation with the lowernominal interest rate, invest in the nation with thehigher nominal interest rate, and profit from theinterest-rate differential. Do you see any potentialproblems with this idea? Explain.A case study in the chapter analyzed purchasingpower parity for several countries using the pricc ofBig Macs. Here arc data for a few more countries: a. For each country, compute the predicted exchangerate of the local currency per U.S. dollar. (Recallthat the U.S. price o( a Big Mac was $4.93.)b. According to purchasing-power parity, what is thepredicted exchange rate between the Hungarianforint and the Canadian dollar? What is the actualexchange rate?c. How well docs the theory of purchasing-powerparity explain exchange rates?
- If the price level recently increased by 19% in Englandwhile falling by 6% in the Canada, by how much mustthe exchange rate change if PPP holds? Assume that thecurrent exchange rate is 0.58 pound per dollarQ.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.E1 The higher the value of e, the ______________(More or less) units of foreign currency a dollar buys. When a nominal exchange rate goes up, we say the domestic currency is _________(appreciating or depreciating) against the foreign currency. When a nominal exchange rate goes down, we say that the domestic currency is _________(depreciating or appreciating) against the foreign currency.
- In Delhi, a haircut costs 135 rupees (INR). Thesame haircut costs 15 Singapore dollars (SGD) inSingapore. At an exchange rate of 50 IN per SGD,what is the price of an Indian haircut in terms of aSingapore haircut? Keeping all else equal, howdoes this relative price change if the INRdepreciates to 55 INR per SGD? Compared to theinitial situation, does a Singapore haircut become more or less expensive in relation to an Indianhaircut?If a cup of coffee costs 2 euros in Paris and $6 inNew York and purchasing-power parity holds, what isthe exchange rate?a. 1/4 euro per dollarb. 1/3 euro per dollarc. 3 euros per dollard. 4 euros per dollarQuestion 10 d Anwser only question d please thank you Assume that there is a free-floating exchange rate. Will the following cause sterling toappreciate or depreciate relative to other currencies? In each case, you should considerwhether there is a shift in the demand or supply curves of sterling (or both) and whichway the curve(s) shift(s). You may assume that the impacts are ceteris paribus, that is,everything else remains the same. Illustrate your answers and give a short explanation interms of currency supply and demand.(a) UK imports increase. (b) UK interest rates rise relative to those abroad. (c) The UK experiences lower inflation than other countries, but with no change in interestrates. (d) Forex speculators believe that the Pound sterling will depreciate.
- Under a fixed exchange rate system (A). would be an exogenous monetary policy instrument, whereas under a flexible exchange rate system (B) endogenous monetary policy instrument. would be an O a. (A) the interest rate; (B) the exchange rate O b. (A) the exchange rate; (B) the interest rate O c. (A) the interest rate; (B) the interest rate O d. (A) the exchange rate; (B) the exchange rateAc Fraw MAA International Finance: Quir 9 23300 OEUROPILE Suppose the cost of a car produced in the United States is $17,000. The current exchange rate is US$10.50 Instructions: Round your answers to two decimal places. a What is the cost of the car in euros? C C ZOMBIE b. Suppose the exchange rate changes to US$1 C0.65 What is the new euro cost of the car? € c At the new exchange rate, the quantity of U.S. cors demanded by those holding euros will likely (Click to seet) H N PRINC Help + Save & ExtIn an open economy, a permanent beneficial suply shock (s< 0)implie tha the domestic real exchange rate wil: Oappreciate as the est of the word buys the domestic curency Oremain unchanged because of fsetig movements n he domestic prie level Oremain unchanged because of ffseting movements in realinteret rates Odepreciate so as to crowd-in net exports