Question

In: Economics

3a. The supply curve of dollars in the foreign exchange market reflects the activities of American...

3a.

The supply curve of dollars in the foreign exchange market reflects the activities of American _________ and ________ investors.

-importers; Mexican

-importers; American

-exporters; Mexican

-exporters; American

b.

A nation whose interest rate is rising relatively fast will see its securities become ________ attractive to foreigners. Its currency will __________.

-more; depreciate

-more; appreciate

-less; depreciate

-less; appreciate

c.

The curve representing the demand for dollars in the foreign exchange market is downward sloping because, when the price of a dollar (the exchange rate) decreases, _________ because they have become relatively ____________.

-Americans demand more foreign goods; less expensive

-foreigners demand fewer American goods; more expensive

-Americans demand fewer foreign goods; more expensive

-foreigners demand more American goods; less expensive

d.

The Japanese yen depreciates relative to the US dollar. What should we expect?

-A decrease in the number of U.S. tourists visiting Japan

-An increase in the Japanese demand for U.S. goods

-An increase in the U.S. demand for Japanese goods

-An increase in the number of Japanese tourists visiting the United States

e.

A situation in which goods cost the same in one country as in another when prices are compared using the market exchange rate is referred to as ___________.

-cost equivalence

-a currency union

-exchange rate neutrality

-purchasing power parity

Solutions

Expert Solution

3a. importers ; American
When there is a supply of dollars in the foreign exchange market, that means the importers have to play their role as during importers and American investors increase and contribute in the spread of dollar supply in the foreign exchange market.

3b. more ; appreciate
increase in the interest rate affects the currency too, as the rates are high it will atttract the investors to invest more to earn more and this will in turn appreciate and increase the value of that particular country more.

3c. foreigners demand more American goods ; less expensive
As the price of dollar decreases in the foreign exchange market, foreginers will have to pay less so they will demand more of american goods as they will have become relatively less expensive.

3d. An increase in the U.S demand for Japanese goods
When the Yen value decreases against US dollar then the demand by the US for Japanese goods will increase as they will have to pay less.

3e.Purchasing power parity
The process of comparing world currencies through a basket of goods way is called as purchasing power parity. When a certain goods are priced same in both countries then both currencies are at par and equilibrium through purchasing power parity.


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