GRADED ASSIGNMENT UNIT XI (20 POINTS)
NAME: ____________________________ POINTS _______ PERCENTAGE _______
PROBLEMS:
1. Yesterday the exchange rate between the Mexican peso and the U.S. dollar was . Today it is . (4 points)
The U.S. dollar has (a) appreciated (b) depreciated
The Mexican peso has (a) appreciated (b) depreciated
2. Name the four principal long-term influences on foreign exchange rates and give a one- sentence description of each: (4 points)
a.
b.
c.
d.
3. Over the next 10 years the Brazilian rate of inflation is on average 8% per year so the Brazilian consumer price index becomes 216% of its level today. The U.S. rate of inflation is on average 2% per year so the U.S. consumer price index becomes 122% of its level today. Based on this, the U.S. dollar should . . . (4 points)
(a) appreciate relative to the Brazilian real
(b) depreciate relative to the Brazilian real
Which of the four long-term determinants of currency exchange rates does this represent?
_______________________________
4. Name the three principal short-term influences on foreign exchange rates: (3 points)
a.
b.
c.
5. Here is a graph of the demand for U.S. dollar financial assets in relation to the exchange rate with the Japanese yen (i.e. how many yen it takes to buy one U.S. dollar). Initial equilibrium is at ¥110 per U.S. dollar. (5 points)
If the Japanese rate of interest decreases, will the demand curve for U.S. assets move left or right? ____________. Draw the new curve.
Based on this, will this exchange rate (i.e. yen per dollar) increase or decrease?
___________.
So, again based on this, will the yen appreciate or depreciate? ______________.
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