PS2 - ECON 321, International Monetary Theory, Spring 2006...

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ECON 321, International Monetary Theory, Spring 2006 Arslan Razmi Problem Set 2 (due on Tuesday March 14 2006) 1. Explain, with the help of figures, the effects of the following events on the equilibrium pound ( )- yen (¥) exchange rate. Please base your figures on the demand for and supply of yen (¥). a. A reduction in demand for European financial assets due to political uncertainty in Europe. b. A reduction in the number of Japanese tourists visiting Japan. c. A Japanese real estate boom attracts European investors. d. An influx of Japanese electronics into European markets. 2. a. The spot market exchange rate for the Chinese yuan (CNY) was CNY8.04/$ today. Last year, the US ran a record trade deficit with China of $201.6 billion. Explain, with the help of figures, the likely effects of a recession in the US on the Chinese exchange rate if: (i) The supply of yuan is assumed to be upward-sloping, and demand downward-sloping. (ii)
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This note was uploaded on 05/07/2008 for the course ECONOMICS 321 taught by Professor Razmi during the Spring '08 term at UMass (Amherst).

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