ECON 1010 Chapter Notes - Chapter 25: South African Rand, Demand Curve, Foreign Exchange Market

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22 Mar 2017

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Chapter 25 the exchange rate and the balance of payments. Foreign currency: foreign notes, coins and bank deposits. The exchange rate is the price at which one currency exchanges for another currency. If the exchange rate is too high in the foreign exchange market, there is a surplus and the exchange rate will fall. The lower the exchange rate, the larger is the quantity of canadian dollars demanded in the foreign exchange market: smaller is the quantity of canadian dollars supplied in the foreign exchange market. The law of demand for foreign exchange tells us that other things remaining the same, the higher the exchange rate, the smaller is the quantity of canadian dollars demanded. At the equilibrium exchange rate the quantity of dollars demanded equals the quantity of dollars supplied. If the canadian dollar depreciates, it means that: one canadian dollar buys less foreign currency, canada"s exchange rate falls.

Related Questions

In the market for foreign-currency exchange in the open-economy macroeconomic model, which of the following does the amount of net capital outflow represent?
a.
the quantity of dollars supplied for the purpose of selling assets domestically
b.
the quantity of dollars supplied for the purpose of buying assets abroad
c.
the quantity of dollars demanded for the purpose of buying Canadian net exports of goods and services
d.
the quantity of dollars demanded for the purpose of importing foreign goods and services

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13. People or firms use one currency to purchase another currency at the ___. A. international currency exchange B. foreign exchange market C. foreign currency exchange D. international parity market

17. If government policy allows a country's currency to be determined in the exchange rate market, then that currency will be subject to A. a hard peg policy. B. purchasing power parity. C. depreciation. D. a floating exchange rate.

19. Which of the following is an example of a pegged currency?

A. U.S. dollar B. British pound C. Euro D. Chinese yuan

22. Using the term "spillover" is a less formal means of describing

A. an externality. B. social costs. C. private costs. D. market failure.

32. Steve and Craig have been shipwrecked on a deserted island in the South Pacific. Their economic activity consists of either gathering pineapples or fishing. We know Steve can catch four fish in one hour or harvest two baskets of pineapples. In the same time Craig can reel in two fish or harvest two baskets of pineapples.

Assume Craig and Steve both operate on straight-line production possibilities curves. What is Steve's opportunity cost of producing a basket of pineapples? Of a producing a fish? What is Craig's opportunity cost of producing a basket of pineapples? Of a producing a fish?

ECON 1010 Chapter Notes - Chapter 25: South African Rand, Demand Curve, Foreign Exchange Market

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