1. Suppose the European Central Bank (ECB)sells US dollars for euros in the FX market (direct...
Homework Answers
Solution:
1)
(a) Increase in demand for euro and Decrease in supply of euro.
ECB selling dollars will increase the demand for euro, and sale of dollars will increase the supply of dollars and decrease the supply of euro.
(b) In following graph, exchange rate (P) and quantity of Euro (Q) are depicted vertically and horizontally respectively. D0 and S0 are initial demand and supply curves for Euro, intersecting at point A with initial exchange rate P0 and quantity of Euro Q0. When demand of Euro rises, D0 shifts right to D1 and when supply of Euro fallss, S0 shifts left to S1, intersecting D1 at point B with higher exchange rate P1.
Note: As per the HOMEWORKLIB RULES i answered 1 st question only.so please re-post the other
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1. Suppose the European Central Bank (ECB)sells US dollars for
euros in the FX market (direct...
Suppose the European Central Bank (ECB)sells US dollars for euros in the FX market (direct FX...
Suppose the European Central Bank (ECB)sells US dollars for euros in the FX market (direct FX intervention). What would be the effect(s) in the market for euros (relative to the US dollar)? Increase in demand for euros Decrease in demand for euros Increase in supply of euros Decrease in supply of euros Why? b. Graphically illustrate the effect on the equilibrium exchange rate (dollars per euro).
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