Exchange Rate Questions
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- List and explain the primary determinants of the demand for dollars and supply of dollars in international currency markets.
- What happens to the value of the dollar when the inflation rate in the United States exceeds the inflation rate of Country X?
- What happens to the value of the dollar when interest rates in the U.S. rise compared to interest rates in Country X?
- Suppose that the summer Olympics in England in the year 2012 increase the popularity of English goods. What will happen to the value of the British Pound?
- This currency, when it is supported at this price floor, is it undervalued or overvalued compared to the market price?
- What will happen as a result of the price floor?
6. Suppose a country was part of an international agreement in which it agreed to keep the value of its currency at a certain level. In the example we are using, let’s say the U.S. has agreed to keep the dollar at 4£ to the dollar. Why might the other members of the exchange agreement want the U.S. to keep the value of its currency high?