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) starts buying Chinese currency using dollar reserves: Variable 1: Supply of dollar in the foreign exchange market___(increase, decrease, unaffected: briefly explain why). Variable 2: Value of dollar in the foreign exchange market (appreciate, depreciate, unaffected: briefly explain why). Variable 3: American goods exported to China unaffected: briefly explain why). (increale, decrease,
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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).1 Suppose that due to a fall in the world interest rate, the equilibrium consumption of trad- ables, CT (r∗, QT1 , QT2 ), increases by 10 percent. Assume that prior to the fall in the world interest rate the economy was operating at full employment. Show that the equilibrium real wage also increases by 10 percent. Show that this result is independent of the exchange rate arrangement. To answer this question, you can use a graphical or a mathematical approach.Consider the simultaneous equilibrium in the US money market and the foreign exchange market. In this problem we will analyze the effect of a decline in the future expected exchange rate (expected (E$/€), i.e. expected dollar appreciation. The figure on the right shows the return on dollar deposits as a function of the dollar/euro exchange rate E$/€. 1) Using the 3-point drawing tool, draw the line representing the dollar return on euro deposits. Label this line 'RET-€1'. 2) Using the 3-point drawing tool, draw a new line on the same graph representing the dollar return on euro deposits as the future expected exchange rate falls, and label it 'RET-€2'. Carefully follow the instructions above and only draw the required objects.
- True/False and Explain An increase in savings implies a decrease in consumption and therefore a decrease in GDP. The exchange rate between two countries can be thought of as unrelated to any economic variables. If the real rate of return on investment is higher in the US than in Canada, capital will tend to flow out of the US and into Canada. When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending. A pro-savings policy by the US would likely reduce the US trade deficit. When savings equals investment, reducing savings and increasing consumption is especially effective in stimulating output. In the dynamic AS-AD model, a perfectly inelastic aggregate supply curve means the central bank cannot control the rate of output growth or the inflation rate. There are an infinite number of combinations of real interest rates and inflation rates consistent…1.10 Read the following extract and answer the question that follows. South African Rand Carried Higher by Ebbing USD as Double-edged Sword Hangs AboveThe Rand has lifted off two month lows to outperform many others early the new month, leading the Pound-toRand exchange rate to explore the land below 20.00 this week in price action that comes alongside an ebbing ofthe U.S. Dollar, although a double-edged sword now hangs above the South African currency.South Africa’s Rand was higher against all of the most heavily traded developed and emerging market currencieson Tuesday with the exception of the Indonesian Rupiah, continuing a week-long period of outperformance.Source: https://www.poundsterlinglive.com/zar/15766-south-african-rand-carried-higher-by-ebbing-usd-asdouble-edged-sword-hangs-aboveAccessed: 20/08/21The performance of the rand reported above is most likely as a result of success in which of the followingmacroeconomic objectives?a) Price stabilityb) Economic growthc) Balance…11-) Question: Suppose that a box of ice cream costs €4 in the United Kingdom and the nominal exchange rate is e=8 £/€. If PPP holds ice-cream should cost .. in Turkey a) 4 Ł b) 2 Ł c) 32 Ł d) 16 Ł e) 8t 12-) Question: In a country if households decide to save ,then the real Exchange rate . and m net exports Please select one or more: a) more / falls / rise b) more / rises / rise c) more / rises / fall d) less / falls / rise e) less / rises / fall
- Consider the exchange rate between Jamaica and Tunisia. Typically, exchange rates vary over time, sometimes quite dramatically. The scenarios present various changes that may affect the exchange rate. Indicate whether each scenario will tend to cause an appreciation or depreciation of, or have no effect on, the value of Jamaican dollars relative to Tunisian dinars. The magazine The Economist publishes an article indicating that analysts expect the value of Tunisian dinars to rise relative to Jamaican dollars. The central bank in Jamaica announces that it will raise interest rates on government bonds. Based on a World Bank report, the inflation rate in Jamaica will be 1% next year, whereas the inflation rate in Tunisia will be 10.5%. The price of a specific basket of goods in Jamaica is roughly 2.0 times higher than the price of an identical basket of goods in Tunisia, even after adjusting for the exchange rate. Answer Bank appreciate no effect depreciateAssume that JA$ 1.00 = GUY $ 2.00. In each scenario below you are asked to find the new value of the Jamaican Dollar (JMD). You will always start a new calculation using the original exchange rate given above. Further, you are required to arrive at a possible explanation for each change and illustrate same on a diagram of the market for Jamaican Dollars. (a) The JMD depreciates by 1%. (b) The JMD depreciates by 3% (c) The JMD appreciates by 2%. (d) The JMD appreciates by 4%.There is a country where the output level is 1200 million €, the interest rate is 3% and the exchange rate is 30. The central bank plans to release its monetary policy and increase the liquidity of the domestic currency. This increase in the liquidityis said to be withdrown after one year, so that money in circulation gets back to its current level. What is expected to happen with the output, the intrest rate and the exchange rate? Explain your answer
- The following is a graph of an index from 4/9/2018-7/3/018 that tracks the movement of 25 emerging market currencies relative to the U.S. dollar. The currencies include the Russian ruble, Mexican peso, Brazilian real, Chinese Yuan, Indian Rupee, etc. The graph illustrates a steady appreciation of the dollar against these 25 currencies: Apr 9, 2018 Apr 23, 2018 May 7, 2018 May 21, 2018 Jun 4, 2018 Jun 18, 2018 Jul 2, 2018 1,700.00 1,680.00 1,660.00 1,640.00 1,621.99 Question: In the short-run, where firms in those emerging markets can't adjust their purchasing habits with the U.S., what is likely to happen to the price level? The price level and the inflation rate is likely to decline because imports from the U.S. are going to become much cheaper. This is due to the fact that the dollar has become much cheaper for these emerging markets. The price level is likely to fall because exports will increase dramatically for these countries. This is due to the fact that movements in a country's…Use the money market and foreign exchange (FX) diagrams to answer the following questions. This question considers the relationship between the euro (€) and the U.S. dollar ($). The exchange rate is in U.S. dollars per euro, E$/€. Suppose that with financial innovation in the United States, real money demand in the United States decreases. On all graphs, label the initial equilibrium point A. A. Assume this change in U.S. real money demand is temporary. Using the FX and money market diagrams, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C. B. Assume this change in U.S. real money demand is permanent. Using a new diagram, illustrate how this change affects the money and FX markets. Label your short-run equilibrium point B and your long-run equilibrium point C.17. Consider two exchange rates X/Y and Z/Y. (For example EUR/USD and JPY/USD.) They both follow perfectly correlated geometric Brownian motions with parameters (1,01) and (μ2,02). (a) The cross-exchange rate X/Z (for example EUR/JPY) follows a standard Brownian motion (b) The cross-exchange rate X/Z (for example EUR/JPY) follows a general Brownian motion (c) The cross-exchange rate X/Z (for example EUR/JPY) follows a geometric Brownian motion (d) The cross-exchange rate X/Z (for example EUR/JPY) does not follow a geometric Brownian motion
