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Chapter 33: Q. 33.2LO (page 732)

Explain the demand for and supply of foreign exchange.

Short Answer

Expert verified

The different amount of currency exchange which would be obtainable in the exchange market at various prices on exchange rates.

Step by step solution

01

Introduction

Traders who may have transferred commodities to these other governments establish a supply curve of different currency. The currency exchange change in supply as well as curve illustrates the different amount of money transfer that would be obtainable also on forex market at even a multitude of currency movements.

02

Given Information

Independent thinker preferences are mostly the fundamental controllers of currency exchange availability.

03

Explanation

This overall number of varied commodities and services which the government might export, and that ultimate volume of investment capital it could collect is limited by the number of currencies their people are keen to purchase from such a fresh angle.

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Most popular questions from this chapter

Suppose that initially in Figure 33-8, the market for Bahrain's currency, the dinar, is in equilibrium at point E1. Now, however, an increase in the U.S. real interest rate has occurred even as real interest rates in Bahrain and elsewhere in the world either have declined or have remained unchanged. What must Bahrain's central bank do, and why, if it wishes to maintain a fixed exchange rate?

On Wednesday, the exchange rate between the Japanese yen and the U.S. dollar was \(0.010 per yen. On Thursday, it was \)0.009. Did the dollar appreciate or depreciate against the yen? By how much, expressed as a percentage change?

Suppose that during a recent year for the United States, the current account balance was -\(0.5trillion, and the net acquisitions of financial assets by U.S. residents and government entities was +\)50.1trillion.

a. What was the balance on the financial account during the year?

b. What was the net incurrence of financial liabilities by U.S. residents and government entities during the year?

At point E in Figure 33-4, how many dollars per year are traded for the equilibrium quantity of pounds?

Take a look at Figure 33-5. Suppose that in response to a significant rise in interest in Jane Austen's works and life, millions of U.S. residents suddenly purchase British-published books by and about the famous author and travel to Britain to visit Jane Austen's former home. What will happen to the equilibrium dollar price of the pound, and why? Does the dollar appreciate or depreciate in relation to the pound?
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