Draw a graph with the number of dollars per English pound on the vertical axis and the quantity of pounds on the horizontal.
Graph the following curves by clicking here
Draw a demand curve for pounds and label it D1. Why is it downward-sloping?
Draw a supply curve for pounds and label it S1. Why is it upward-sloping?
Label the equilibrium exchange rate e1.
Suppose that the U.S. Tourism Promotion Council runs a wildly successful advertising campaign in England such that there is a large increase in British tourists coming to the U.S. Depict this change on your graph.
What happens to the price of pounds? Does the dollar appreciate or depreciate? Explain.
Draw a graph with the number of pesos per dollar on the vertical axis and the quantity of dollars on the horizontal.
Graph the following curves by clicking here
Draw a demand curve for dollars and label it D1. Why is it downward-sloping?
Draw a supply curve for dollars and label it S1. Why is it upward-sloping?
Label the equilibrium exchange rate e1.
Suppose that two events occur simultaneously:
An especially good growing season increases Mexican agricultural exports to the U.S.
Security concerns among Mexicans prompt a large decrease in Mexican tourists traveling to the U.S.
Draw the new supply and demand curves on the same graph, labeling them D2 and S2.
What happens to the price of dollars? Does the peso appreciate or depreciate? Explain.
Draw a graph with the difference between the interest rate in New York and the interest rate in Tokyo on the vertical axis, and the exchange rate premium (p) on the horizontal axis.
Graph the following curves by clicking here
Draw the covered interest parity line. Why should it be a 45-degree line?
Select a point that is above and to the left of the covered interest parity line, and label it “A.” Is this point an equilibrium? Why or why not?
Select a point that is below and to the right of the covered interest parity line, and label it “B.” Is this point an equilibrium? Why or why not?
