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All I Need Is Questions 1,3,5,7,9
Name/l.D. Number: Section: Date: Part 3. Discussion Questions and Problems 1. Explain the link between the Mexican demand for U.S.goods and the supply of pesos. Next, explain the link between the U.S. demand for Mexican goods and the supply of dollar 2. The lower the dollar price of a peso, the higher the quantity demanded of pesos, and the lower the quantity supplied of pesos. Do you agree or disagree? Explain. 3. What does it mean to say that the U.S. dollar has depreciated in value in relationship to the Mexican peso? What does it mean to say that the Mexican peso has appreciated in value relative to the U.S. Dollar? 4. Suppose the United States and Japan have a flexible exchange rate system. Explain whether each of the following events will lead to an appreciation or depreciation in the U.S. dollar and Japanese yen. a. U.S. real interest rates rise above Japanese real interest rates. b. The Japanese inflation rate rises relative to the U.S. inflation rate. c. U.S. income increases with no change in Japanese 5. What are the strong and weak points of the flexible exchange rate system? What are the strong and weak points of the fixed exchange rate system? 6. Explain the details of the purchasing power parity (PPP) theory. 7. Explain how a growing budget deficit can affect the value of a country's currency on the foreign exchange market. 8. What does it mean to say that a currency is overvalued? undervalued? 9. Under a flexible exchange rate system, if the equilibrium exchange rate is 0.10 USD = 1 MXN and the current exchange rate is 0.12 = 1 MXN, will the U.S. dollar appreciate or depreciate? Explain. 10. What is an optimal currency area? 5