VIEWS: 5 PAGES: 1 POSTED ON: 8/8/2011
EXCHANGE RATES & THE BALANCE OF PAYMENTS HELP: (1) Suppose that the following 2 events take place in the market for Kuwait's currency, the Dinar: The U.S. demand for oil, Kuwait's main export good, declines, and market interest rates on financial assets denominated in Dinar decrease relative to U.S. interest rates. (a) What happens to the dollar price of the Dinar? If this happens then there is less demand for Kuwait’s product, consequently less demand for Dinar; also when market interest rates on financial assets denominated in Dinar decrease relative to U.S. interest rates, there is again less demand for the Dinar, therefore the price of the Dinar will decrease. (b) Does the Dinar appreciate or depreciate relative to the dollar? The Dinar price relative to the US dollar depreciates (2) On Wednesday, the exchange rate between the euro and the U.S. dollar was $1.20 per euro. On Thursday, it was $1.18. (a) Did the dollar appreciate or depreciate against the euro? The dollar has appreciated against the Euro, as it now takes fewer dollars to buy a Euro. (b) By how much? It appreciated by 1.7% (.02/1.20 = .017) or by $1.20 - $1.18 = $0.02.
Pages to are hidden for
"2008-02-23_044331_EXCHANGE_RATES"Please download to view full document