1. Recall the example of a prisoner-of-war camp in World war II. In the camp, cigarettes were used as a means of exchange instead of money. The following table is exchange rates in a building, say Building A. Then, answer the following questions: [MI]: Which item is most expensive? a. Milk b. Jam c. Sugar d. Same e. All are disvalued items The price per unit Milk 3 cigarettes [M2]: When you have a unit of sugar, how many units of Jam can you exchange? Jam 4 cigarettes a. a quarter of unit b. a half of unit Sugar 2 cigarettes c. one unit e. two units d. one and a half unit [M3]: Suppose there 60 cigarettes in Building A and each of goods are traded 20 times. Then, how many rotations is the transaction velocity of money according to the quantity theory of money by Prof. Fisher? Answer the number in natural numbers.

1. Recall the example of a prisoner-of-war camp in World war II. In the camp, cigarettes were used as a means of exchange instead of money. The following table is exchange rates in a building, say Building A. Then, answer the following questions: [MI]: Which item is most expensive? a. Milk b. Jam c. Sugar d. Same e. All are disvalued items The price per unit Milk 3 cigarettes [M2]: When you have a unit of sugar, how many units of Jam can you exchange? Jam 4 cigarettes a. a quarter of unit b. a half of unit Sugar 2 cigarettes c. one unit e. two units d. one and a half unit [M3]: Suppose there 60 cigarettes in Building A and each of goods are traded 20 times. Then, how many rotations is the transaction velocity of money according to the quantity theory of money by Prof. Fisher? Answer the number in natural numbers.

Macroeconomics: Principles and Policy (MindTap Course List)

13th Edition

ISBN:9781305280601

Author:William J. Baumol, Alan S. Blinder

Publisher:William J. Baumol, Alan S. Blinder

Chapter19: The International Monetary System: Order Or Disorder

Section: Chapter Questions

Problem 8DQ

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6. In the exchange rate model in Example 7.2, supposethe company continues to manufacture its product inthe United States, but now it sells its product in theUnited States, the United Kingdom, and possibly othercountries. The company can independently set its pricein each country where it sells. For example, the pricecould be $150 in the United States and £110 in theUnited Kingdom. You can assume that the demandfunction in each country is of the constant elasticityform, each with its own parameters. The question iswhether the company can use Solver independently ineach country to find the optimal price in this country.(You should be able to answer this question withoutactually running any Solver model(s), but you mightwant to experiment, just to verify your reasoning.)
You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible. What is the effect on the foreign exchangemarket (the $ market)? 12. What impact will this have on imports?A. increaseB. decreaseC. remains unchanged 13. What impact does the change in the exchangerate have on aggregate demand?A. increase (shifts to the right)B. decrease (shifts to the left)C. remains unchanged 14. What happens to the aggregate supply curve?A. increase (shifts to the right)B. decrease (shifts to the left)C. remains unchanged
Question 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.
Suppose you obtain the following quotes: Foreign exchange market: Spot rate: SUS$/€ = 1.0623 180-day Forward rate: F180US$/€ = 1.0765 Money market (180-day): RUS$ = 5.75% p.a. R€ = 4.25% p.a. Note: Keep your answers to 4 decimal points if necessary. a) Based on the above information, is there any arbitrage opportunity? If yes, what should the commercial bank do to capture this arbitrage opportunity? If not, why? Explain. b) Suppose the commercial bank has the ability to “move” the market (i.e., affecting the spot exchange rate, the forward exchange rate, and the returns on bonds in both countries), what happens to these variables after the transactions carried in part (a)? Explain. c) Instead of affecting the interest rates and the 180-day forward rate, suppose the spot exchange rate bears all the burden of adjustments, find the US$/€ spot rate that would eliminate interest arbitrage
You have been hired as a Marco Economist by the President of the United States to help evaluate the recentannouncement by Federal Reserve chairman Ben Bernanke that the FED will be increasing interest rates again.Ben Bernanke has justified the move on the grounds that the economy continues to be strong. Answer thefollowing questions. Provide a graphical explanation for your answers whenever possible What is the effect on the foreign exchangemarket (the $ market)? 8. The exchange rate (the amount of foreigncurrency that a $ buys)?A. increaseB. decreaseC. remains unchanged 9. The U.S. dollar has?A. depreciatedB. appreciatedC. remained unchanged 10. The currency in the other country has?A. depreciatedB. appreciatedC. remained unchanged
Question 10 a b and c 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.
8) Suppose that the government has imposed the tax on the foreign investorsper currency they pay for financial assets issued by the country. Discuss itsimplications on the current foreign exchange rate?
If a countrys currency is expected to appreciate in value, what would you think will be the impact of expected exchange rates on yields (e.g., the Interest rate paid on government bonds) in that country? Hint: Think about how expected exchange rate changes and interest rates affect a currencys demand and supply.
12. suppose that the 2-year interest rates in the US(foreign) and KRW (domestic) are 1.5% and 3%, respectively. The current spot exchange rate is 1150 KRW per USD. The 2-year foward exchange rate should be F0 = 1150e^2(3%-1.5%) = 1185 Explain what strategy can be considered to have riskless profit if F0 is less or greater that 1185 Case 1 : F0 = 1200 Case 2 : F0 = 1130
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4) Suppose that the long term interest rate is decreasing since there is anexpectation that the economy is delving into the recession. How that changemight affect the foreign exchange rate in the country? Discuss? (Use graphs)
(1) What might happen if people lose trust in theircountry’s currency? (2) Why couldn’t you buy yourgroceries using an amount of gold of equal value tothe cost of the items you want to purchase?