International Economics
16th Edition
ISBN: 9781305887633
Author: Robert Carbaugh
Publisher: Cengage Learning
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Suppose the Australian dollar floats against the US dollar and the demand for Australian dollars in the foreign exchange market is given by Q = 125 - 50E where Q denotes the quantity of AUD and E denotes the nominal exchange rate expressed in USD per AUD. The supply of Australian dollars is given by Q = 25 + 50E. What is the equilibrium nominal exchange rate? 0.751.250.501.00
Suppose that the Mexican government decides to fix or peg the dollar-peso exchange rate at P20 = $1. If foreign-exchange traders on one day want to exchange $60 million for pesos, to enforce the peg the Mexican government will need to come up with
For an investment in a foreign-currency-denominated financial asset, which of the followings is/are true?
* The overall return to such an investment comes only from the return on the asset itself.
The overall return to such an investment comes only from changes in the exchange-rate value of the foreign currency
The overall return to such an investment comes from both the return on the asset itself and changes in the exchange-rate value of the foreign currency
The value of investment (in terms of home currency) increases If the foreign currency value increases relative to my own currency.
Both c and d
Explain with no plagiarism
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- Suppose the US dollar is currently trading at a nominal exchange rate of e=120 Yen. If the inflation rate in the US is 5% over the next period when the inflation rate in Japan is 15% during the same period, what is the predicted value of the nominal exchange rate (in Yen) in the next period if purchasing power parity holds? Round to two decimals.arrow_forwardSuppose that today the exchange rate between the U.S. dollar and the Chinese yuan is $1 = 6.2 yuan. If next week the exchange rate is $1 = 7 yuan, it is clear that: A)The yuan has depreciated relative to the dollar. B)The dollar has depreciated relative to the yuan. C)The dollar has appreciated relative to the yuan. D)Both currencies have appreciatedarrow_forwardSuppose that yesterday, the U.S. dollar-Japanese yen exchange rate was $1=¥0.553546. The price of one Japanese yen in terms of a U.S. dollar was ___ . Suppose that today the U.S. dollar-Japanese yen exchange rate falls to $1=¥0.533585 for one dollar. This means that between yesterday and today, the U.S. dollar has ___ against the Japanese yen. The price of a Mexican peso in terms of the U.S. dollar is now ___ .arrow_forward
- Q2-12 When considering the change in price of a country's imports when foreign currencies depreciate by 10% relative to the home country, the "elasticity of exchange rate pass-through" would be equal to Select one: a. 1.0 if there were no "pass-through." b. 1.0 if there were complete "pass-through." c. zero if there were complete "pass-through." d. 10% if there were complete "pass-through."arrow_forwardAs the price level decreases, the cost of borrowing money will (remain the same/increase/decrease) , causing the quantity of output demanded to (rise/increase/fall/remain the same) . This phenomenon is known as the (exchange rate/interest rate/wealth) effect. Additionally, as the price level decreases, the impact on the domestic interest rate will cause the real value of the dollar to (rise/decrease/falll) in foreign exchange markets. The number of domestic products purchased by foreigners (exports) will therefore (rise/increase/fall/remain the same) , and the number of foreign products purchased by domestic consumers and firms (imports) will (rise/decrease/fall/remain the same) . Net exports will therefore (rise/increase/fall/remain the same) , causing the quantity of domestic output demanded to (fall/increase/remain the same/rise) . This phenomenon is known as the (exchange rate/interest rate/wealth) effect.arrow_forwardWhich of the following illustrates noncontractual exchange-rate risk? A. A U.S. importer will owe £50,000 and the pound is expected to appreciate. B. A French airplane manufacturer has suppliers in the U.S. and the exchange rate has been unstable. C. A U.S. distributor of Japanese electronic goods expects the dollar to depreciate. D. A U.S. subsidiary of a German manufacturer transfers €100,000 to the parent annually.arrow_forward
- PQ 23 Assuming a flexible exchange rate, in the balance model, what effect, other factors constant, will a foreign government budget deficit financed by issuing bonds have on the home country's currency value?arrow_forwardIf core price inflation has grown at a compound growth rate of 2 percent per annum in the United States and 0.06 percent in Japan for the past eight years, what exchange rate represents PPP today if the two currencies eight years ago in 2005 were in parity and exchanged at the rate of ¥109/$?arrow_forward
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