Say that the exchange rate between the US dollar and the Mel

Say that the exchange rate between the U.S. dollar and the Melnik bop is expressed in terms of bops per dollar. All of the following will cause this exchange rate to rise, ceteris paribus, except for:

A. a decrease in interest rates in the United States

B. an increase in U.S. demand for intricate carvings made exclusively by artists in Melnik

C. an increase in Melnik residents\' demand for U.S. made cigarettes

D. a big increase in the number of American tourists visiting the beautiful archaeological sites of Melnik

E. an increase in interest rates in Melnik

Solution

C. an increase in Melnik residents\' demand for U.S. made cigarettes is the right option as it means the higher demand for US made cigarttes will result in higher demand for dollars by the Melnik residents, that means Melnik bop will depreciate and dollar will appreciate,.

all other options will result in exchange rate or appreciation of Melnik bop currency.

A. decrease in US interest rates means money will flow out of US to Melnik where interest rates are high, so high demand for Melnik bop.

B. Higher US demand will increase demand for Melnik bop, thus Melnik bop will appreciate.

D. big increase in the number of American tourists will increase demand for Melnik bop, thus Melnik bop will appreciate.

E. an increase in interest rates in Melnik will attract more dollar, hus Melnik bop will appreciate..