Reference Ref 199 11 Scenario Exchange Rates The value of a

Reference: Ref 19-9

11.

Scenario: Exchange Rates
The value of a euro goes from US$1.25 to US$1.50.

Reference: Ref 19-9

(Scenario: Exchange Rates) Look at the scenario Exchange Rates. The euro has:

a.	depreciated.
b.	appreciated.
c.	been devalued.
d.	not been affected for use in international trade.

11. When the value of a Euro goes from $ 1.25/€ to $ 1.50/€ then the euro has been appreciated and dollar had depreciated.

12. A fixed exchange rate :

According to Fleming-Mundell model the perfect mobility, a fixed exchange rate prevents the government from using domestic monetary policy in order to achieve macroeconomic stability.

A fixed exchange rate makes the trade between two countries simple and easier.

13. Current Account + Financial Account = 0

CA + FA = 0

CA = - FA

FA = - CA

So, first three options are correct.

Last option CA = FA is incorrect.

14. Foreign currencies are traded in foreign exchange market.

Reference: Ref 19-9 11. Scenario: Exchange Rates The value of a euro goes from US$1.25 to US$1.50. Reference: Ref 19-9 (Scenario: Exchange Rates) Look at the sc

Reference Ref 199 11 Scenario Exchange Rates The value of a

Solution

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