Chapter 4Exchange Rate DeterminationSuggested Homework Questions(updated 10/8/07)1. Use three graphs below (U.S. Imports from France, U.S. Exports to France, and the euro Market) to explain how the exchange rate between the U.S. dollar and the euro is determined.US Imports from France US Exports to France euro (€) MarketD$ price € price D$ per €A B C E Quantity of €Quantity of Exports Quantity of Imports S D Include in your explanation a discussion of how the demand for U.S. imports and the demand for U.S. exports relate to the supply and demand for francs. For the two points (A and B) on the demand curve for U.S. Imports, show the corresponding points in the euro market (label them A* and B*). For the two points (C and E) on the demand curve for U.S. Exports, show the corresponding points in the euro market (label them C* and E*). Indicate the equilibrium price in the euro market (label it P*). Explain what will happen if the exchange rate is above the equilibrium price P* (i.e., identify who will be dissatisfied with this situation, why they will be
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