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Unformatted text preview: or $’s D
$’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
S D3 Quantity of Dollars
Quantity of Dollars Taste [products/assets]
Y50 D$ S$ D
S$ A # of Dollars D AMX
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):
The increase in investment in India will increase demand for the rupee & appreciate that
currency. This would result in an increase in supply of the U.S. dollar for more rupees,
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This note was uploaded on 07/20/2012 for the course ECON 2106 at GCSU.