The following questions focus on the exchange rate between the Malaysian ringgit and the Danish krone. Assume the exchange rate is flexible. The exchange rate is defined as the number of ringgit you must pay for one krone. Suppose an economic downturn in Denmark causes Danish incomes to decrease, while Malaysian incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal. RINGGIT PRICE OF KRONER Supply of Kroner Demand for Kroner QUANTITY OF KRONER The decrease in Danish incomes causes the Danish krone to relative to the Danish krone. Demand for Kroner D Supply of Kroner relative to the Malaysian ringgit and causes the Malaysian ringgit to Suppose the price level in Denmark rises by 7%, while the price level in Malaysia remains the same. That is, the inflation rate in Denmark is higher than in Malaysia.

The following questions focus on the exchange rate between the Malaysian ringgit and the Danish krone. Assume the exchange rate is flexible. The exchange rate is defined as the number of ringgit you must pay for one krone. Suppose an economic downturn in Denmark causes Danish incomes to decrease, while Malaysian incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal. RINGGIT PRICE OF KRONER Supply of Kroner Demand for Kroner QUANTITY OF KRONER The decrease in Danish incomes causes the Danish krone to relative to the Danish krone. Demand for Kroner D Supply of Kroner relative to the Malaysian ringgit and causes the Malaysian ringgit to Suppose the price level in Denmark rises by 7%, while the price level in Malaysia remains the same. That is, the inflation rate in Denmark is higher than in Malaysia.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter29: International Finance

Section: Chapter Questions

Problem 8P

See similar textbooks

Similar questions

Is a country for which imports and exports comprise a large fraction of the GDP more likely to adopt a flexible exchange rate or a fixed (hard peg) exchange rate?
6. Changes in the foreign-exchange market The following questions focus on the exchange rate between the Malaysian ringgit and the Danish krone. Assume the exchange rate is flexible. The exchange rate is defined as the number of ringgit you must pay for one krone. Suppose an economic downturn in Denmark causes Danish incomes to decrease, while Malaysian incomes remain unchanged. Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for Danish kroner if all other things remain equal.
Use the FX market diagram to answer the following question. Consider the relationship between the Mexican peso and the Canadian dollar (C$). Let the exchange rate be deÖned as Mexican pesos per Canadian dollar, Epesos=C$. For each of the following cases, illustrate the e§ects on the FX market using graphs and state how the following variables change: interest rates in Mexico (ipeso) and Canada (iC$), the spot exchange rate (Epesos=C$), and the expected rate of return on Canadian and Mexican deposits (from the perspective of a Mexican investor). Unless otherwise noted, you may assume that the expected exchange rate is unchanged. (a) Canadaís interest rate increases. (b) Investors in the market anticipate an appreciation in the peso. (c) Mexicoís interest rate decreases. (d) Canada and Mexico decrease interest rates by the same amount.
The following diagram shows relationships between exchange rate E and interest rate R (first quadrant, top right); between price level P and exchange rate E (second quadrant; top left); between real money M/P and price level P (third quadrant, bottom left); and between interest rate R and real money M/P (fourth quadrant, bottom right). A. Copy the diagram. Then illustrate and explain in the diagram how an interest rate increase in the money market and foreign exchange market model affects the exchange rate in the short run. (Indicate, if one or more quadrants are not required for explaining the mechanisms.) B. What could be the reason for an interest rate increase in the money market and foreign exchange market model? Explain in the diagram used for part a of the question. C. Assume now the interest rate increase was actually caused by the reason you mentioned in part b of the question. Explain its effect in the long run? You may use the diagram from part a or draw a new diagram if…
You have just been hired by the U.S. government to analyze the following scenario. Suppose the U.S. agricultural industry is concerned about the level of fruit and vegetable imports to the United States, a practice that hurts domestic producers. Lobbyists claim that implementing a quota on imports would shrink the size of the trade deficit. The following exercise will help you to analyze this claim. The following graph shows the demand and supply of U.S. dollars in a model of the foreign-currency exchange market. Given this change, the dollar (appreciate, depreciate) . Fill in the following table with the effect of a quota on the following items: Supply of Loanable Funds Real Interest Rate Domestic Investment Net Exports in crease, decrease, or no change increase, decrease or no change increase decrease or no change increase , decrease or no change
Use the money market and FX diagrams to answer the following questions. This question considers the relationship between the Indian rupee (Rs) and the U.S. dollar ($). The exchange rate is in rupees per dollar, ERs/$. On all graphs, label the initial equilibrium point A. a. Illustrate how a permanent increase in India’s money supply affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. b. By plotting them on a chart with time on the horizontal axis, illustrate how each of the following variables changes over time (for India): nominal money supply MIN, price level PIN, real money supply MIN/PIN, interest rate iRs, and the exchange rate ERs/$. c. Using your previous analysis, state how each of the following variables changes in the short run (increase/decrease/no change): India’s interest rate iRs, ERs/$, expected exchange rate EeRs/$, and price level PIN. d. Using your previous analysis, state how each of the…
The graph represents a foreign exchange market and shows the supply and demand for Median Earth's currency, the shilling. The price of a shilling is stated in terms of Normandy's currency, the doubloon. The horizontal axis shows the quantity of shillings that are desired and offered for exchange. The exchange rate in doubloons per shilling is measured on the vertical axis. Answer the questions based on the graph.
Consider the exchange rate between U.S. Dollar and Mexican Peso: USD/MXN. If the supply curve for USD shifted from 100+en to 104+en bln dollars per week and the demand curve shifted from 140-en to 142-en bln dollars per week, then the exchange rate changed by _____ percent
Suppose that last year the exchange rate was GHC1= $1. Now suppose the rate has gone to GHC1=$2. What is the effect of this change on ghanaian firms and consumers? explain five (5) effects each
Using the concept of "carry trade," explain how a decrease in U.S. interest rates could affect the EUR/USD exchange rate. Given this change in exchange rate, how would firms and customers be affected? professors note Supply and demand for currencies can be tricky, not least due to the confusing idea that what we are buying or selling is money itself! Once you can wrap your mind around the idea that money is what is being obtained for other money, the next set of questions relates to what would or could make the price of one money change in terms of another. To this effect, I'd recommend a primer from Investopedia: Six Factors That Influence Exchange Rates. For your consideration in responding to this post, I suggest reading on how the Carry Trade has the capacity to magnify systemic risk.
in fall 2011 the euro dollar exchange rate was $1.35 and by spring 2015 it strenghthed to $1.10 . Asssume that the euorpean luxury marketeres cut the price of an $8000 linen suit by 10 percent when launching its spring 2015 collection . how would revenues have been affected when dollar prices were converted to euros?
I need to draw a graph showing the foreign exchange market in south africa wherein the majorty of sales of citrus fruit are going to europe, explain the impact this increase in the demand for citrus fruit will have on the rand/euro exchange rate and the value of the rand