In class, we use the dollar-euro exchange rate, Es/c to graph foreign exchange equilibrium. Let's use the yen-dollar exchange rate, Ex /s, instead. (a) Assuming that the expected future exchange rate is 120 yen per dollar, 0.001 and Rs = 0.01, plot the curve for the expected yen return on dollar assets (deposits). What is the equilibrium exchange rate? (b) Suppose the expected future exchange rate rises to 122. What is the new equilibrium exchange rate? Using a figure to show the equilibrium.

In class, we use the dollar-euro exchange rate, Es/c to graph foreign exchange equilibrium. Let's use the yen-dollar exchange rate, Ex /s, instead. (a) Assuming that the expected future exchange rate is 120 yen per dollar, 0.001 and Rs = 0.01, plot the curve for the expected yen return on dollar assets (deposits). What is the equilibrium exchange rate? (b) Suppose the expected future exchange rate rises to 122. What is the new equilibrium exchange rate? Using a figure to show the equilibrium.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

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