Question

In: Economics

Imagine France and the US are exclusive trading partners. French people can only use Euros while...

  1. Imagine France and the US are exclusive trading partners. French people can only use Euros while Americans can only use dollars. What happens to the exchange rate of either euros or dollars with the following changes? Explain carefully in a paragraph or two:
    1. US exporting industries become more productive.
    2. The French government doubles the money supply.
    3. The US government decides to increase their tariffs on delicious French Cheeses

Solutions

Expert Solution

Ans-a) If U.S exporting industries become more productive , it implies that there will be increased volume of exports by the country . Increase in exports would raise large revenue and result in inflow of funds in the country . Consequently , the demand for domestic currency will rise , thereby strengthening the Dollar. Hence , the US Dollar will appreciate in the foreign exchange market.

Ans-b) If the French government doubles the money supply , it would lead to inflation in the economy which makes the export good less competitve in the foreign market and hence the export demand would fall. Excess money supply also lowers the value of domestic currency . Inflation due to rush of money supply would decrease the interest rates , thereby decreasing the demand for domestic currency by investors. The combined effect of inflation, low interest rates and less competitve exports would lead to depreciation of French Euro in foreign exchange market.

Ans-c) Imposition of tariffs by US on French Cheese would lead to an appreciation of US Dollar and depreciation of French Euro . This is so because levying tariffs on French Cheese makes it expensive in U.S market . This would decrease the demand of French Cheese in US market and would also decrease the trade deficit of US with France . This terms of trade effect would result in appreciation of U.S Dollar.

However , the export demand of French Cheese has fallen leading to drop in revenue and inflow of funds . This decreases the demand for French Euro and hence cause a depreciation of French domestic currency.


Related Solutions

True or False, Although France and America were unlikely partners, the French were intent on avenging...
True or False, Although France and America were unlikely partners, the French were intent on avenging their loss of Canada to Britain in the French and Indian War. True False      What were the American advantages in the war, according to your text? Broad support for the rebel cause in America, experienced politicians, and control of local governments that could mobilize local militias to aid the Continental Army. Support from nearly all Indian tribes, vast stores of military supplies and...
In February 2020, the US dollar was trading on the foreign exchange market at 0.88 euros...
In February 2020, the US dollar was trading on the foreign exchange market at 0.88 euros per US dollar, and today the US dollar is trading at 0.83 euros per US dollar.    how will trading between the two countries be effected?
In the book of Daniel, understanding God's people are in exile/captivity, you can only imagine what...
In the book of Daniel, understanding God's people are in exile/captivity, you can only imagine what it must have been like to be separated from everything they had ever connected with their faith. Their holy city, their sacred places and the icons of their Jewish history had all been left behind. How difficult do you believe it would be to find yourself in a similar situation and not forsake your beliefs? What are some ways you could maintain your faith...
suppose two countries, France & Germany, use only capital and labor for production. France has 2050...
suppose two countries, France & Germany, use only capital and labor for production. France has 2050 units of capital and 916 units of labor and Germany has 816 units of capital and 270 units of labor. Both countries produce two goods, car and wine. In Germany there are 366 units of capital and 135 units of labor employed in the wine industry. In frnace, there are 926 units of capital and 618 units of labor employed in the wine industry....
While economic analysis shows that free trade increasesconsumption for all trading partners, criticism against free...
While economic analysis shows that free trade increases consumption for all trading partners, criticism against free trade has been expressed by several policy makers and voters. Trade proponents emphasize the positive net benefits of trade, increasing the economic pie for each trading partner and benefiting each country as a whole. Critics point to the distributional effects of trade in primarily importing countries, benefiting consumers with lower prices and harming some producers. In the U.S. some manufacturing workers have been made...
Code in Python. You can only use while loops NOT for loops. Program 1: cost_living In...
Code in Python. You can only use while loops NOT for loops. Program 1: cost_living In 2020 the average cost of living/month (excluding housing) for a family of 4 in Pittsburgh was $3850 per month. Write a program to print the first year in which the cost of living/month is over $4450 given that it will rise at a rate of 2.1% per year. (Note:  this program requires no input). Program 2: discount A discount store is having a sale where...
If projects are mutually exclusive, only one project can be chosen.
7. Understanding the NPV profile If projects are mutually exclusive, only one project can be chosen. The internal rate of return (IRR) and the net present value (NPV) methods will not always choose the same project. If the crossover rate on the NPV profile is below the horizontal axis, the methods will _______ agree. Projects W and X are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. YearProject WProject X0-$1,000-$1,5001$200$3502$350$5003$400$6004$600$750If the required rate of return...
The maximum amount of steel or aluminum that Canada and France can produce if they use...
The maximum amount of steel or aluminum that Canada and France can produce if they use all the factors of production at their disposal with the best technology available to them is shown (hypotheti-cally) in Table 2.8. Table 2.8 Steel and auto Production                                    Canada.           France Steel (tons)               500.                  1,200 Aluminum (tons)     1,500                  800 Assume that production occurs under constant-cost conditions. On graph paper, draw the produc-tion possibilities frontiers for Canada and France; locate aluminum on the horizontal...
Note: You can use only pointer based operations while implementing each of the functionalities below// zero...
Note: You can use only pointer based operations while implementing each of the functionalities below// zero points will be given if pointer operations are not used in implementing // each of the operations below. // Also, use C code only in visual studio or GCC i) Create a 2 - D array of integers using pointers (use dynamic memory allocation) in C. Assume that the array has 4 rows and 5 columns.Then, fill the array with randomly generated int values...
Use this diagram for the questions that follow. Assume a trading authority of around US$1,000,000 or...
Use this diagram for the questions that follow. Assume a trading authority of around US$1,000,000 or around HK$ 8,000,000. Market DATA= Spot rate(US$/HK$): 0.1289 180-day forward: 0.1302 180-day US$ LIBOR: 3.00% 180-day HK$ HIBOR: 1.50% What is the HK$ forward premium (+) or discount (-)? Use the standard number of digits in expressing the interst rate as in "7.89% What is the US$ - HK$ interest rate differential? During the investment horizon of 180 days you would be an owner...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT