Economics: Principles & Policy
14th Edition
ISBN: 9781337912679
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning US
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Question
Chapter 35, Problem 7DQ
To determine
The effect of change in exchange rate on the value of money.
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You are going to Japan on an exchange trip in a few months and need to turn your dollars into the Japanese currency, the yen. Right now the exchange rate is $1 = 105 yen, but you expect the dollar to appreciate next month and it should be valued at $1= 107 yen.
If you exchange $200 for yen today, how many yen will you receive? Explain.
If you decide to wait and exchange your dollars when they are worth $1= 107 yen, how many yen will you receive? Explain.
Based on this information, should you exchange your money now or wait a few months? Explain.
Suppose interest rates on 1-year deposits &
loans in the U.K. equal 1.5%, and interest rates
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change in the #MXN/GBP (#Mexican pesos/1
GBP) is --
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less than 3%
greater than 4.5%
greater than 3%
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In Belarus, the government doesn’t allow trading of its ruble outside a narrow price range, which greatly overvalues the ruble – there is a price floor on the ruble compared to euros or dollars. Because of the floor, currency trading has dried up – who would want to sell foreign currencies for grossly overpriced Belarusian rubles? A friend of one of my students has a web site designed to overcome rigidities in this market, a sort of Craigslist for currency. People specify amounts they are willing to buy or sell, agree to trade at some price and arrange a meeting place. When they meet, the trade nominally occurs at the official price floor, making the transaction nominally legal; but the person selling rubles makes extra payments to the buyer to lower the price sufficiently so that the trade actually takes place at the equilibrium price. This is one more way in which technology helps markets circumvent imperfections and rigidities.
Q: If the Belarusian government increases…
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