Use Figure 1 above to determine the effect of the following changes on the exchange rate. For each number, assume other factors are constant and only the variable in that number has changed. increase decrease expectation that the exchange rate will increase in the near future O O increase in domestic interest rate (or rate or return) increase in domestic price level Increase in domestic income level Increase in foreign price level O O O O - Ο Ο Ο Ο
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- Nov. 2015 exchange rate (per U.S. dollar) 0.7466 100.2 Nov. 2016 exchange rate (per U.S. dollar) 0.8009 114.61 Currency Euro Japanese yen Canadian dollar 1.0436 L1331 The table above shows the exchange rates between various currencies and the U.S. dolar. Between 2015 and 2016, the U.S. dollar against the Japanese yen. O depreciated; depreciated • appreciated; appreciated against the Euro and O appreciated; depreciated O depreciated; appreciatedThe accompanying table provides nominal exchange rates for the U.S. dollar. Country Foreign currency/dollar Canada (Canadian dollar) 1.256 Mexico (peso) 20.19 Dollar/foreign currency O a. 25.359; 0.039 Ob. 16.075, 0.062 O c. 0.062; 16.075 O d. 0.039; 25.359 0.796 0.050 Based on these data, the nominal exchange rate equals approximately dollar or, equivalently, Canadian dollars per peso. pesos per CanadianB C D E F G H J K L M e US dollar to Euro exchage rate is 0.886, The US dollar to Austailian dollar exchange rate is 0.5352 and canadian dollar to US dollar exchange rate is 1.5815 lculate: The Euro to US dollar, the Australian dollar to US dollar and the US dollar to canadian dollar exchange rates. xchange rates beginning ending minimum median 0.886 maximun mean dollar to foreign currency
- Give typing answer with explanation and conclusion Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. Initially, the supply curve for USD is 100 + eN bln dollars per week and the demand curve is 140 - eN bln dollars per week. There is a financial crisis in Mexico and the government fears that it may lead to capital outflows that would make the crisis even worse. They decide that if Mexican Peso depreciates by more than 20% the central bank will step in and fix the exchange rate. As the crisis unfolds the demand for the U.S. dollars increases to 142 - eN and the supply of dollars falls to 99 + eN. How should the central bank of Mexico react to this change?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.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 euros
- QUESTION 2 N Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. If the supply curve for USD shifted from 100+e to 104+eN bln dollars per week and the demand curve shifted from bln dollars per week, then the exchange rate changed by 140-e - eN to 142-eN percent. Note: Type in your answer rounded to two decimal places, i.e., your answer must be of the form "999.99". I will not be able to fix correct answers that were entered incorrectly, such as "999.999" or "999,99" or "999". In case the last digit in the correct answer is zero, e.g., "999.90" or "999.00", Blackboard may automatically delete it and you should not do anything about it. In case of percentages, do not type in the percentage symbol "%". If your answer is a negative number, type a dash in front of your answer, i.e, "-999.99".Consider a basket of consumer goods that costs $60 in the United States. The same basket of goods costs NOK 40 in Norway. Holding constant the cost of the basket in each country, compute the real exchange rates that would result from the two nominal exchange rates in the following table. Cost of Basket in U.S. (Dollars) 60 60 Cost of Basket in Norway (Kroner) 40 40 Nominal Exchange Rate (Kroner per dollar) 3.00 2.00 Real Exchange Rate (Baskets of Norwegian goods per basket of U.S. goods)Suppose the real exchange rate is 10, the domestic price level is 8, and the foreign price level is 4. (i) What is the nominal exchange rate?Use the expression: ,where ereal is real exchange rate, enor is nominalexchange rate, P is domestic price level and Pfor, is foreign price level (ii) Suppose the real exchange rate rises by 10%, the inflation rate in the domestic country is 6%, and the inflation rate in the foreign country is 4%. By what percentage does the nominal exchange rate change?
- Q.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.Exchange Rates Table YEAR 2014 2015 2016 US $ $1 $1 $1 British Pound .85 .7 .6 Based on the Exchange rates above, Which of the following is true? O The dollar is growing stronger against the pound The dollar is more expensive in pounds and is appreciating O More pounds are needed to buy a dollar, so the dollar is appreciating O The dollar is less expensive in pounds and is depreciating17. Problems and Applications Q9 Purchasing-power parity holds between the nations of Ectenia and Wiknam, where the only commodity is Spam. In 2020, a can of Spam cost 4 dollars in Ectenia and 24 pesos in Wiknam. The exchange rate between Ectenian dollars and Wiknamian pesos was Over the next 35 years, inflation is expected to be 2 percent per year in Ectenia and 4 percent per year in Wiknam. If this inflation comes to pass, what will happen over this period to the price of Spam and the exchange rate? Over this period, the price of Spam in Ectenia will double and the price of Spam in Wiknam will quadruple 70 from the chapter "The Basic Tools of Finance.") The exchange rate between the two countries will double Wiknam will likely have a higher nominal interest rate. 6 pesos per dollar. I Which of the following statements explains the flaw in your friend's logic? A friend of yours suggests a get-rich-quick scheme: borrow from the nation with the lower nominal interest rate, invest in the…