Review_Questions_Chapters_15__16 - ECMC61 International...

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ECMC61 – International Economics: Finance Review Questions – Chapters 15 & 16 Chapter 15 – Money, Interest Rates, and Exchange Rates Question 1: Problems #4. Question 2: Problems #10. Question 3: Compare to a temporary increase in real money demand, there will be a larger appreciation of domestic currency in the short run when the real money demand increases permanently. True/False/Uncertain, explain. Question 4 Consider two open economies, Argentina and Brazil. The exchange rate between the Argentine Peso (Peso) and the Brazilian Real (Real) is given by the asset approach to the exchange rate. The level of money supply and the (real) money demand for both countries are: Argentina: MS A = 21250 L A (R A , Y A ) = 0.75Y A – 5000R A Brazil: MS B = 16300 L B (R B , Y B ) = 0.5Y B – 5000R B Note: R i = nominal interest rate for country i, where i = Argentina or Brazil. Quote the exchange rate as E Peso/Real , and interest rates are expressed in decimal points (i.e., if R = 0.1, then R = 10%). In your written explanation, use the subscripts “A” and “B” to denote all variables and terms used for Argentina and Brazil respectively.
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