Macroeconomics
4th Edition
ISBN: 9780393602487
Author: Jones, Charles I.
Publisher: W. W. Norton & Company
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Question
Chapter 20, Problem 4E
a)
To determine
The graph of the exchange rate over time.
b)
To determine
Explain the appreciation or
(c)
To determine
Discuss the statement using the tools used in the chapter.
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For each prompt below, carefully and thoroughly follow the directions. For the graphs, be certain to accurately label all axes, curves, and points as appropriate. Show your work for any calculations.
(a) Draw the foreign exchange market for euros in terms of pounds. Label the equilibrium exchange rate (e1), the equilibrium quantity (Q1), and the current exchange rate (ec). Assume that there is a shortage of the euro at the current rate.
(b) Assume the current exchange rate for the Chinese yuan in terms of the U.S. dollar is $0.20 per yuan. Based on this information, draw the foreign exchange market for dollars. Assume the market is in equilibrium.
The United States and Mexico are trading partners.
(c) Using side-by-side graphs of the exchange market for the U.S. dollar and the Mexican peso, show the impact of an increase in the demand for pesos.
(d) Based on the change indicated in part (c), is the U.S. dollar appreciating or depreciating?
(e) If the United States began…
The following figure shows the Current Account Balance (similar to the Trade Balance) of Japan
(black line) and China (red line). During their growth periods (1980s for Japan and 2000s for
China), were these countries net savers or borrowers? What are some ways that the
governments intervened in the foreign exchange market to keep their BOP from adjusting
towards 0?
12.5
10.0
7.5
5.0
2.5
0.0
-5.0
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: Organization for Economic Co-operation and Development
fred.stlouisfed.org
US $, Sum Over Component Sub-periods/10000000O000
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.
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- At the start of 1996, the annual interest rate was 8 percent in the United States and 4.8 percent in Japan. The exchange rate was 110 yen per dollar at the time. Mr. Jorus, who is the manager of a Bermuda-based hedge fund, thought that the substantial interest advantage associated with investing in the United States relative to investing in Japan was not likely to be offset by the decline of the dollar against the yen. He thus concluded that it might be a good idea to borrow in Japan and invest in the United States. At the start of 1996, in fact, he borrowed ¥1,000 million for one year and invested in the United States. At the end of 1996, the exchange rate became 120 yen per dollar. How much profit did Mr. Jorus make in dollar terms?arrow_forwardIn the picture below is the table to answer this question. The highlighted one is my guess which is wrong. Based on the Exchange rates above, How might international travel be affected by the exchange rates above? A)More Americans can afford to travel to Canada.B)More Canadians will be able to afford travel in the US. C)More Americans can afford to travel to Great Britain.D)Mexico is an expensive place for Americans to travel.arrow_forwardDescribe how a change in the exchange rate affected your firm. Explain what happened to your price and quantity. How can you profit from future shifts in the exchange rate? How do you predict future changes in the exchange rate?arrow_forward
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