QUESTION 11Return to the information in 9. Assume that the interest rate is 0.07 in the U.S. It is 0.07 in Honduras. Assume that interest ratesfall to 0.02 in Honduras but there is no change in the U.S. The market expectsO Honduras to devalue by five percentHonduras to revalue to five percentthe market expects an increase in the risk premiumThe market expects slow economic growth in HondurasO We do not have enough information QUESTION 9Honduras is on a fixed exchange rate with the U.S. The exchange rate is 3.0 pesos to the U.S dollar. Domestic credit is 40 and themoney supply is 100. The backing ratio is.O 0.30.40.6O 0.2O We do not have enough informationQUESTION 10Honduras forms a currency board. Given the information in 9, how much does it need to increase domestic credit to form acurrency board.6040-60-50O We do not have enough information.

09. Honduras is on fixed exchange rate with the US. The exchange rate is 3.0 pesos with the US…

QUESTION 11 Return to the information in 9. Assume that the interest rate is 0.07 in the U.S. It is 0.07 in Honduras. Assume that interest rates fall to 0.02 in Honduras but there is no change in the U.S. The market expects O Honduras to devalue by five percent O Honduras to revalue to five percent the market expects an increase in the risk premium O The market expects slow economic growth in Honduras We do not have enough information O O

QUESTION 11 Return to the information in 9. Assume that the interest rate is 0.07 in the U.S. It is 0.07 in Honduras. Assume that interest rates fall to 0.02 in Honduras but there is no change in the U.S. The market expects O Honduras to devalue by five percent O Honduras to revalue to five percent the market expects an increase in the risk premium O The market expects slow economic growth in Honduras We do not have enough information O O

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 2SCQ: Suppose that political unrest in Egypt leads financial markets to anticipate a depreciation in the...

See similar textbooks

Similar questions

Suppose that political unrest in Egypt leads financial markets to anticipate a depreciation in the Egyptian pound. How will that affect the demand for pounds. supply of pounds, and exchange rate for pounds compared to, say, U.S. dollars?
Using the table shown, what is the most current 6-month forward exchange rate shown for British pounds? Use a direct quote from a U.S. perspective and assume today is Tuesday. Country Britain (Pound) £ 1 Month Forward 3 Months Forward 6 Months Forward O $0.6024-£1.00 $1.66 €1.00 O $1.61-£1.00 $1.60-£1.00 O $1.00-£0.6024 U.S. $ equiv. Tuesday Monday 1.6000 1.6100 1.6300 1.6100 1.6300 1.6600 1.6600 1.7200 Currency per U.S. $ Tuesday Monday 0.6250 0.6211 0.6173 0.6024 0.6211 0.6173 0.6024 0.5814
Purchasing power parity theory would suggest that if the Canadian price of a basket of goods is C$1,800, but the same basket in the United States is U.S.$1,300, and the actual exchange rate is C$1.30 = U.S.S1.00, then the value of the Canadian dollar should O A. depreciate by approximately 8.9 percent. O B. depreciate by approximately 6.2 percent. OC. appreciate by approximately 8.9 percent. O D. appreciate by approximately 6.2 percent. O E. remain unchanged.
Purchasing Power Parity (PPP) theory states that Select one: O a the prices of standard commodity baskets in two countries are not related. O b. None of them. O c. as the purchasing power of a currency sharply declines (due to hyperinfiation) that currency will appreciate against stable currencies. O d the exchange rate between currencies of two countries should be equal to the ratio of the countries' price levels. 22 As of today, the spot exchange rate is C100 = $1.20, and the rate of infiation expected to prevoil for the next year in the U.S. is 2% and 3% in the eurozone. What is the one-year forward rate that should prevail? Select one: O a cL00 - S1.2379 O b S1.00 = co.8623 O c. S1.00 - €CLI883 O d e100 - S1IBB3
The demand for Australian dollars in the foreign exchange market equals 14000 – 3000e and thesupply of Australian dollars in the foreign exchange market equals 2000 + 2000e, where e is thenominal exchange rate expressed in euros per Australian dollar. If the Australian dollar is fixed at 2euros per Australian dollar, then to maintain this fixed rate, what is the required change in theReserve Bank of Australia’s holdings of euros? 1increase by 4000 euros 2decrease by 2000 euros 3decrease by 4000 euros 4increase by 2000 euros
QUESTION 3 sdenoted by GBP/USD and reflects the price of one Pound in Dollars. Search for the current GBP/USD exchange rate The U.S. Dollar-British Pound exchange rate and select a correct statement among the options below O A. Pound is a less expensive currency than Dollar O B. Pound is a more expensive currency than Dollar O C. Pound has always been less expensive than Dollar in the last 5 years O D. If GBP/USD falls, British goods would be more expensive for American consumers
If one Canadian dollar buys US$0.85, and one Euro buys US$1.20, then one Euro should buy O a. C$1.02 O b. C$1.41 O c. C$2 O d. C$1.64
41 Suppose the Euro substantially depreciates against the Jopanese yen. The change in the exchange rate sut of Select one: O a will tend to weaken the competitive position of import-competing European car makers. O b. None of them. O c. will tend to strengthen the competitive position of import-competing European car makers, O d will tend to strengthen the competitive position of Japanese cor makers at the expense of European car makers.
In Windsor, Ontario, a Big Mac from McDonald's costs C$4.17 (Canadian dollars), and across the border in Detroit it costs $3.56 (US dollars). a. Suppose the nominal US exchange rate with Canada is US$0.74 per Canadian dollar. Does purchasing power parity hold between the two countries? O Yes, it holds because the Canadian Big Mac costs less in terms of U.S. dollars. O No, it does not hold because the Canadian Big Mac costs more in terms of U.S. dollars. O No, it does not hold because the Canadian Big Mac costs less in terms of U.S. dollars. O Yes, it holds because the Canadian Big Mac costs more in terms of U.S. dollars. b. What is the exchange rate for the US if purchasing power parity holds. Instructions: Round your answer to three decimal places. US dollar per Canadian dollar $
QUESTION 3 The U.S. Dollar-British Pound exchange rate is denoted by GBP/USD and reflects the price of one Pound in Dollars. Search for the current GBP/USD exchange rate and select a correct statement among the options below O A. Pound is a less expensive currency than Dollar O B. Pound is a more expensive currency than Dollar OC. Pound has always been less expensive than Dollar in the last 5 years O D. If GBP/USD falls, British goods would be more expensive for American consumers
What is the impact on the market for foreign exchange if citizens of your country are encouraged to purchase local goods? Select one: O a. Inward shift of the supply curve and real exchange rate rises O b. Inward shift of the demand curve and real exchange rate falls O c. Outward shift of the supply curve and real exchange rate falls O d. Outward shift of the demand curve and real exchange rate rises O e. Inward shift of the demand curve and real exchange rate rises
An individual in the England wants to buy office equipment from England which costs $2,000. If the exchange rate is 1pound=$1.9, how much will the office equipment cost him in pounds? O a. 2,000 pounds b. 1,800 pounds c. 3,800 pounds O d. 1,053 pounds