Chapter 36: Problem 1
Under a gold standard, if the price of an ounce of gold is 1,400 U.S. dollars and 1,300 Canadian dollars, what is the exchange rate between U.S. and Canadian dollars?
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Suppose you just returned home from a vacation in Mazatlán, Mexico, where you exchanged U.S. dollars for Mexican pesos. How did your trip to Mexico affect the supply and demand for dollars and the exchange rate (assume that all other things are equal)?
How does a currency speculator profit from exchange-rate changes? Give an example of a profitable speculation.
What does it mean to say that a currency appreciates or depreciates in value? Give an example of each and briefly mention what might cause such a change.
You are a U.S. importer who buys goods from many different countries. How many U.S. dollars do you need to settle each of the following invoices? a. \(1,000,000\) Australian dollars for wool blankets (exchange rate: \(\mathrm{A} \$ 1=\$ 769\) ) b. 500,000 British pounds for dishes (exchange rate: \(£ 1=\$ 1.5855\) ) c. 100,000 Indian rupees for baskets (exchange rate: \(R_{s} 1=\$ .0602\) ) d. 350 million Japanese yen for stereo components (exchange rate: \(¥ 1=\$ .0069\) ) c. 825,000 curos for German wine (exchange rate: \(€ 1=\$ 1.05)\)
Write an equation that describes interest rate parity and explain the equation.
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