How will the following event affect variables 1 through 3 in the foreign exchange market under a flexible exchange rate system; other things unchanged. Event: The U.S. Central Bank (the Fed) purchases US dollar using pesos it has on reserve: Variable 1: Supply of pesos in the foreign exchange market ___(increase, decrease, unaffected; briefly explain why). Variable 2: Value of pesos in the foreign exchange market ____(appreciate, depreciate, unaffected; briefly explain why). Variable 3: Mexican goods exported to the U.S. ______________(increase, decrease, unaffected; briefly explain why).
How will the following event affect variables 1 through 3 in the foreign exchange market under a flexible exchange rate system; other things unchanged. Event: The U.S. Central Bank (the Fed) purchases US dollar using pesos it has on reserve: Variable 1: Supply of pesos in the foreign exchange market ___(increase, decrease, unaffected; briefly explain why). Variable 2: Value of pesos in the foreign exchange market ____(appreciate, depreciate, unaffected; briefly explain why). Variable 3: Mexican goods exported to the U.S. ______________(increase, decrease, unaffected; briefly explain why).
Chapter21: International Finance
Section: Chapter Questions
Problem 4QP
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How will the following event affect variables 1 through 3 in the foreign exchange market under a flexible exchange rate system; other things unchanged.
Event: The U.S. Central Bank (the Fed) purchases US dollar using pesos it has on reserve:
Variable 1: Supply of pesos in the foreign exchange market ___(increase, decrease, unaffected; briefly explain why).
Variable 2: Value of pesos in the foreign exchange market ____(appreciate, depreciate , unaffected; briefly explain why).
Variable 3: Mexican goods exported to the U.S. ______________(increase, decrease, unaffected; briefly explain why).
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