Ch 5 Global Trade [AP & Reg]

22underasystemoffreelyfloatingexchangeratesanincreasei

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Unformatted text preview: or $’s D A + ­ + ­ + ­ + ­ + ­ $ $’s looking for Y E2 Yen depreciates Yen E1 appreciates E3 XMD [Exchange Rate: $1 = Y100] Y Price of $ Yen Price of Dollar Appreciation/Depreciation Price D1$ D2 S D3 Quantity of Dollars Quantity of Dollars Taste [products/assets] Interest Rates Price Level Growth Rate Currency Price Currency Y150 Y100 Y50 D$ S$ D A S$ S$ A # of Dollars D AMX + ­ + ­ + ­ + ­ + ­ Price Rupee Price of Dollar R100 R50 D1 $ R looking for $’s A R25 R25 Rupee S1$ $’s looking for R S2$ E1 appreciates D E2 Quantity of Dollars (c) Using a correctly labeled graph of the foreign exchange market for the U.S. dollar, show how an increase in U.S. firms’ direct investment in India will affect the value of the U.S. dollar relative to the Indian currency (the rupee). Answer to 2. (c): Answer The increase in investment in India will increase demand for the rupee & appreciate that The currency. This would result in an increase in supply of the U.S. dollar for more rupees, curre...
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This note was uploaded on 07/20/2012 for the course ECON 2106 at GCSU.

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