Worksheet 10 - EMILY LEUNG FRIDAY 10:10 Introduction to...

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EMILY LEUNG –FRIDAY 10:10 Introduction to Macroeconomics Econ 104a,c,d,e,f, - Spring 2010 Worksheet 10 International Finance 1. Consider the markets (Supply and Demand) for dollars and yen. Imagine it is 1979. The initial exchange rate between the yen and the dollar is 1 dollar = 75 yen. Fed Chairman Paul Volker undertakes serious contractionary monetary policy to stop inflation, and it has the corresponding (and predicted) effect of drastically increasing interest rates in the U.S., causing real U.S interest rates to go up relative to the real interest rates in other countries, including Japan. This means U.S. T-bills (bonds) are giving a higher real rate of return than the bonds of any other country in the industrialized world. a. Show what would happen to the price of the dollar and the yen in the markets below. b. Has the dollar appreciated or depreciated? Explain in words. The dollar has appreciated because it grew stronger than it was before. c.
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This note was uploaded on 10/19/2011 for the course ECON 104 taught by Professor Dolenc during the Spring '08 term at UMass (Amherst).

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Worksheet 10 - EMILY LEUNG FRIDAY 10:10 Introduction to...

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