Consider two open economies, the Philippines (Domestic Country) and Singapore (Foreign Country) • The price of foreign exchange is given by the amount of Philippine Peso (PHP) required to purchase a unit of Singapore Dollar (SGD). Hence: E = PHP SGD • At the initial equilibrium exchange rate, the prevailing interest rate for Philippine and Singaporean securities were both 3% Given the recent series of rate hikes by the Bangko Sentral ng Pilipinas, the prevailing interest rates for Philippine securities increased to 5%, while that of Singaporean securities stayed the same Given this information, illustrate and explain the effects of the Philippine interest rate decrease on the equilibrium price of foreign exchange, and the equilibrium quantity of foreign exchange (SGD) in the market. Make sure to include the following: shifts (if any) in the supply and/or demand for foreign exchange (SGD), the change (if any) in equilibrium price and/or quantity of foreign exchange (SGD), and whether the Philippine Peso appreciates or depreciates relative to the Singaporean Dollar. Ensure that your graphs are correctly labelled, and that all important lines/movements/shifts are mapped out correctly

Consider two open economies, the Philippines (Domestic Country) and Singapore (Foreign Country) • The price of foreign exchange is given by the amount of Philippine Peso (PHP) required to purchase a unit of Singapore Dollar (SGD). Hence: E = PHP SGD • At the initial equilibrium exchange rate, the prevailing interest rate for Philippine and Singaporean securities were both 3% Given the recent series of rate hikes by the Bangko Sentral ng Pilipinas, the prevailing interest rates for Philippine securities increased to 5%, while that of Singaporean securities stayed the same Given this information, illustrate and explain the effects of the Philippine interest rate decrease on the equilibrium price of foreign exchange, and the equilibrium quantity of foreign exchange (SGD) in the market. Make sure to include the following: shifts (if any) in the supply and/or demand for foreign exchange (SGD), the change (if any) in equilibrium price and/or quantity of foreign exchange (SGD), and whether the Philippine Peso appreciates or depreciates relative to the Singaporean Dollar. Ensure that your graphs are correctly labelled, and that all important lines/movements/shifts are mapped out correctly

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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