Question

In: Economics

Central African CFA franc (XAF) is a currency used by 14 African countries and it is...

Central African CFA franc (XAF) is a currency used by 14 African countries and it is pegged to the Euro (fixed ECFA/EURO). The currency union countries are committed to protect the CFA franc, and the fixed exchange rate regime and capital mobility, under all circumstances.

Suppose that a political scandal in the area causes disturbances in the area, across multiple countries. Due to this news, investors revise their exchange rate forecasts and expect CFA franc to depreciate against the euro in the future. Provide your answers in brief bulleted points.

  1. What happens in the FX market following the change in exchange rate forecasts? Explain which schedule(s) shift and why. Assume CFA franc to be the home currency. (what happens to domestic return, foreign return, etc.)
  2. How does the equilibrium ECFA/EURO  exchange rate change? Why? (which way does it shift)
  3. What happens in the currency union money market following the change in exchange rate forecasts? Explain which schedule(s) shift and why. (what happens to money supply, money demand, nominal interest rate, etc)
  4. What happens to the equilibrium interest rate? Why? (increase or decrease, and why?)

(Please show the graphs you draw, and if possible typed answers. Please also do not copy other answers that are on Chegg, as those are wrong. Thank you.)

Solutions

Expert Solution

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

Central African CFA franc (XAF) is a currency used by 14 African countries and it is...
Central African CFA franc (XAF) is a currency used by 14 African countries and it is pegged to the Euro (fixed ECFA/EURO). The currency union countries are committed to protect the CFA franc, and the fixed exchange rate regime and capital mobility, under all circumstances. Suppose that a political scandal in the area causes disturbances in the area, across multiple countries. Due to this news, investors revise their exchange rate forecasts and expect CFA franc to depreciate against the euro...
3. Critically assess whether African countries should form optimum currency areas.
3. Critically assess whether African countries should form optimum currency areas.
Two countries have the same currency and central bank but their bond yields are different, what...
Two countries have the same currency and central bank but their bond yields are different, what is the cause of this?
Dollar/Franc Exchange Values U.S $ Equivalent Currency per U.S. $ Wed. Tue. Wed. Tue. Switzerland (franc)...
Dollar/Franc Exchange Values U.S $ Equivalent Currency per U.S. $ Wed. Tue. Wed. Tue. Switzerland (franc) 0.7207 0.7225 a) Fill in the last two columns of the table with the reciprocal price of the dollar in terms of the franc. b) On Wednesday, the price of the two currencies was _________ dollars per franc, or francs per dollar. c) From tuesday to Wednesday, the dollar (appreciated/depreciated) against the franc; the franc (appreciated/depreciated) against the dollar. d) On Wednesday, the cost...
Suppose that two countries, Italy and Palestine, produce olive oil. The currency used in Italy is...
Suppose that two countries, Italy and Palestine, produce olive oil. The currency used in Italy is the euro (EUR), while Palestine uses the New Israeli Shekel (NIS). In Italy, olive oil sells 6€ per litre. The exchange rate is 5 NIS per 1 EUR. a. If the law of one price holds, what is the price of olive oil in Palestine, measured in NIS? (5 points) b. Assume the average market price of olive oil in Palestine is actually 24...
Describe the effect of the 2008-2009 global financial crisis on the Swiss franc and the central...
Describe the effect of the 2008-2009 global financial crisis on the Swiss franc and the central bank's efforts to respond to the resulting problems.
Question 14) Before the holy month of Ramadan in Arab countries, people used to renew the...
Question 14) Before the holy month of Ramadan in Arab countries, people used to renew the dining rooms furniture. Therefore, Malak’s Furniture store purchased especially decorated Dining Rooms on 1st of February 2020. Due to COVID-19 breakout and the quarantine imposed on people, Malak expect that the Special Dining Rooms will not be sold for Ramadan that forced the company to decrease the prices in order to attract customers. However, sales are less than expectation. Analyze the above case based...
Is industrial policy necessary for African countries? Explain why.
Is industrial policy necessary for African countries? Explain why.
5. Consider two countries: Poland (whose currency is the zloty) and Germany      (whose currency is...
5. Consider two countries: Poland (whose currency is the zloty) and Germany      (whose currency is the euro). Shown below are average annual rates of inflation      expected over the next twenty years. The numbers in the table are filled in for      Germany. Make up numbers for Poland that are consistent with two conditions:      (1) that productivity growth in Poland’s traded sector will be sufficiently rapid to      bring about a fall in the relative price of traded...
How Medical Ethics Differ in Asian Countries Compared to African Countries. Write an essay and elaborate...
How Medical Ethics Differ in Asian Countries Compared to African Countries. Write an essay and elaborate in detail up to max of 2000 words.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT