Assume that Canada and Kenya are trading partners. Assume that Canada experience significant inflation compared to...
Assume that Canada and Kenya are trading partners. Assume that Canada experience significant inflation compared to Kenya. Draw the foreign exchange market for the Canadian currency and show what happens to the demand for Canadian dollars. Be sure to identify if the canadian dollar will appreciate or depreciate?
Homework Answers
An increase in inflation rate in Canada as compared to Kenya will lead to decrease in the level of net exports of Canada and as the net exports decline, the demand for Canadian dollar will also decrease. The decrease in the demand will shift the demand curve leftwards to D'D' and thus new equilibrium occurs at point E2 where exchange rate has fallen and Canadian dollar has depreciated with respect Kenyan currency. This can be depicted in the diagram as:
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Assume that Canada and Kenya are trading partners. Assume that
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The graph below shows demand and
supply curves for U.S. dollars in the foreign exchange
market. As you can see, the exchange rate (in terms of
foreign currency units per dollar) is initially equal to
E0.
Suppose that next year there’s
a huge increase in the number of foreigners – from Europe, China,
and everywhere else – who decide to visit the U.S. as
tourists.
How would this huge increase in tourism in the U.S. affect the
exchange rate? To answer this,...
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This is the complete question, no other outside information is
given for this. Having trouble with it, please show work.
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