econ final paper extra analysis

econ final paper extra analysis - For simplicity, the...

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For simplicity, the following graphical analysis of Fig. 1 through Fig. 3 will compare the dollar to the British pound using the current exchange rate of dollars to pounds instead of the 2004 exchange rate. When exchange rates are allowed to float, they are determined the same way other prices are determined. The equilibrium exchange rate occurs at the point at which the quantity demanded of a foreign currency equals the quantity of that currency supplied. Fig. 1 provides a comparison of the U.S. dollar to the British pound showing the demand and supply for dollars in the foreign exchange market as well as the equilibrium exchange rate. The demand for dollars in the foreign exchange market shows a negative relationship between the price of dollars (£/$) and the quantity of dollars demanded while the supply of dollars shows a positive relationship. As mentioned in the article, a weak dollar can promote sales of U.S. goods abroad. Fig. 1 shows that when the price of dollars falls, U.S. made goods and services appear less expensive to the British.
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This note was uploaded on 01/26/2009 for the course ECON 102 taught by Professor Kyle during the Spring '08 term at Cornell University (Engineering School).

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econ final paper extra analysis - For simplicity, the...

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