Answered: Imagine a world of 3 currencies on a…

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Open-economy Macroeconomics: Basic Concepts

Section: Chapter Questions

Problem 5PA

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Question

Imagine a world of 3 currencies on a fixed exchange rate regime. The exchange rates are $1NZ = ¥60 = €4. Suppose that the $NZ is devalued by 20% with respect to the yen only. What transactions would holders of $NZ assets make?

Select one:

a.Change $NZ into euros then into yen then into $NZ again.

b.Change $NZ into yen then into euros then into $NZ again.

c.Change $NZ into yen and then back to $NZ again.

d.Hold their $NZ assets to avoid further losses on the exchange rate.

Continuing from the previous question - if the devaluation against the yen is to hold then what must the set of exchange rates become?

Select one:

a.$1NZ = ¥60 = €4

b.$1NZ = ¥72 = €4.8

c.$1NZ = ¥48 = €3.2

d.$1NZ = ¥48 = €4.8

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