Microeconomics 20th Edition Community College of Philadelphia Custom
17th Edition
ISBN: 9781308150468
Author: McConnell
Publisher: MCG/CREATE
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Chapter 27, Problem 4RQ
To determine
The exchange rate between dollar and pound.
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8. Suppose that last year, the nominal exchange rate between the Japanese yen and the British pound was ¥150.0 per £1.0, one unit of Japanese output cost ¥1300, and one unit of British output cost £8.0.a. What was the real exchange rate between the U.K. and Japan last year, expressed as the cost of British output (i.e. – the quantity of Japanese output that exchanges for 1 unit of British output)? In which country were goods more expensive last year?
2. Suppose a currency is temporarily undervalued by a fixed exchange rate system, such as the international gold standard. Let that currency be the US dollar, and expressed in terms of British pounds. a. Show this disequilibrium using a supply and demand graph. Be sure to carefully label your axes. b. Clearly explain how one could profit by arbitraging in dollars using a bill of exchange. If it helps, you can use a numerical example.
Suppose that the government of China is currently fixing the exchange rate between the U.S. dollar and the Chinese yuan at a rate of $1 = 6 yuan. Also suppose that at this exchange rate, the people who want to convert dollars to yuan are asking to convert $10 billion per day of dollars into yuan, while the people who are wanting to convert yuan into dollars are asking to convert 36 billion yuan into dollars. What will happen to the size of China’s official reserves of dollars? a. Increase. b. Decrease. c. Stay the same.
Chapter 27 Solutions
Microeconomics 20th Edition Community College of Philadelphia Custom
Ch. 27.1 - Prob. 1QQCh. 27.1 - Prob. 2QQCh. 27.1 - Prob. 3QQCh. 27.1 - Prob. 4QQCh. 27.A - Prob. 1ADQCh. 27.A - Prob. 1ARQCh. 27.A - Prob. 1APCh. 27 - Prob. 1DQCh. 27 - Prob. 2DQCh. 27 - Prob. 3DQ
Ch. 27 - Prob. 4DQCh. 27 - Prob. 5DQCh. 27 - Prob. 6DQCh. 27 - Prob. 7DQCh. 27 - Prob. 8DQCh. 27 - Prob. 9DQCh. 27 - Prob. 10DQCh. 27 - Prob. 11DQCh. 27 - Prob. 1RQCh. 27 - Prob. 2RQCh. 27 - Prob. 3RQCh. 27 - Prob. 4RQCh. 27 - Prob. 5RQCh. 27 - Prob. 6RQCh. 27 - Prob. 7RQCh. 27 - Prob. 8RQCh. 27 - Prob. 9RQCh. 27 - Prob. 10RQCh. 27 - Prob. 1PCh. 27 - Prob. 2PCh. 27 - Prob. 3PCh. 27 - Prob. 4PCh. 27 - Prob. 5P
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- Give typing answer with explanation and conclusion Suppose that the current exchange rate is 1.48 euro = 1 pound, but it is expected to be 1.35 euro =1 pound in one year. If the current interest rate on a one-year government bond in the United Kingdom is 9 %, what does the interest-rate parity condition indicate the interest rate will be on a one-year government bond in Germany? Assume that there are no differences in risk, liquidity, taxation, or information costs between the bonds. The German interest rate will be ________ %. (Round your response to two decimal places.)arrow_forwardSuppose that currency market for Mexican pesos and Canadian dollars is initially in equilibrium, with 10 pesos trading for 1 Canadian dollar. Because of a new trade agreement, there has been a shift in the demand for pesos due to a sudden increase in the capital inflow from Canada to Mexico. What is the effect of the capital inflow on the exchange rate of pesos for Canadian dollars? Explain and show grahically. On your graph, Quantity of Canadian dollars should be on the vertical axis and the Exchange rate (Mexican pesos per Canadian dollar should be on the vertical axis.arrow_forward1) Assume Turkish lira (TL) is expected to depreciate by 10% over the next year against US dollar. If the Turkish interest rate is15%, what would be the US interest rate that can make a Turkish investor to be willing to buy US securities today? Assume capital is perfectly mobile between Turkey and US. 2-) If the price level of Turkish goods is 200, the price level of foreign goods is 125, and the lira price of foreign currency is 1.20, what is the real exchange rate? What is the meaning of this rate for the competitiveness of Turkish goods? 3-)With the help of an IS-LM diagram show and explain the effect of restrictive monetary policy on output under flexible exchange rates and perfect capital mobilityarrow_forward
- Each of the governments of Brazil and Turkey has issued bonds in Brazilian real (BRL) and Turkish lira (TRY), respectively. Assume that both government securities are one-year bonds, i.e., paying the face value of the bond one year from now. Suppose that the exchange rate, E, stands at 1 Brazilian real per 0.79 Turkish lira. The following table gives face values and prices of both bonds: Face Value Price Brazil BRL 10,000 BRL 9,630 Turkey TRY 10,000 TRY 9,450 Compute the nominal interest rate on each of the bonds. Compute the expected exchange rate next year consistent with uncovered interest parity. If you expect the real to depreciate relative to the lira, which bond should you buy? Assume that you are a Brazilian investor. You exchange the reals for liras and purchase the Turkish bond. One year from now, it turns out that the exchange rate, E, is 0.75, i.e., 0.75 liras buy one real. What is your realized rate of return in reals compared to the realized rate of return…arrow_forwardIf the real exchange rate for coal is 1.5, the price of coal in the United States is $50 per ton, and the price of coal in Britain is 20 British pounds per ton, what is the nominal exchange rate? a. 4/15 or 2.67 pounds per dollar b. 15/4 or 3.75 pounds per dollar c. 3/5 or 0.6 pounds per dollar d. 5/3 or 1.67 pounds per dollararrow_forwardAdvanced Analysis: Refer to the following table, in which Qd is the quantity of loonies demanded, P is the dollar price of loonies, Qs is the quantity of loonies supplied in year 1, and Qs' is the quantity of loonies supplied in year 2. All quantities are in billions. Further, assume that the exchange rate is fixed at 110. Qd P Qs Qs' 10 125 30 20 15 120 25 15 20 115 20 10 25 110 15 5 Instructions: Enter your answers as whole numbers. a. In year 1, what would be the minimum initial size of the U.S. reserve of loonies such that it could maintain the peg throughout the year? billion loonies b. What about the minimum initial size that would be necessary at the start of year 2? billion loonies Next, consider only the data for year 1. c. What peg should the United States set if it wants the fixed exchange rate to increase the domestic money supply by $1.2 trillion? dollars per looniearrow_forward
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