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Draw a foreign exchange market supply and demand diagram to illustrate how the Yen-Dollar exchange rate is determined. Set the initial equilibrium at a rate of 100 Yen per Dollar.

 

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Romarie Khazandra Marijuan
Romarie Khazandra MarijuanLv10
6 Nov 2020

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Related questions

Assume that the U.S. dollar and the Japanese yen are the only two currencies in the world.

a. A bilateral nominal exchange rate S is the spot (now) exchange value of one currency in terms of the other and S can be written as dollars per 1 yen or yen per 1 dollar. If S = yen/1 dollar = 76.92 then the inverse 1/S gives dollars per 1 yen where 1/S = 1/(yen/1 dollar) = 1/76.92 = .013. If the 1/S increases to .014, has the dollar appreciated (1 dollar is worth more yen) or depreciated (1 dollar is worth less yen)? Explain.

b. Changes in demand and supply in the foreign exchange (FX) market determine the value of floating exchange rates S. If S is expressed as S = yen/1 dollar, then we have the FX market in terms of the demand and supply of dollars. (If S = dollars/1 yen, then we get the FX market in terms of the demand and supply of yen. Note also that no matter which currency the FX market is expressed, it is still an FX market where dollars are exchanged for yen. This means that an upward-sloping supply of dollars curve is exactly the same as a demand for yen curve and a downward-sloping demand for dollars curve is exactly the same as a supply of yen curve). Using S = yen/1 dollar and the FX market in terms of the demand and supply of dollars, an increase in S (dollar appreciation) leads to an increase in the number of dollars supplied (increase in the quantity of yen demanded). For dollar demand (or the supply of yen), an increase in S (dollar appreciation) leads to a decrease in the number of dollars demanded (or an increase in the number of yen supplied). The dollar demand curve shifts to the right if more yen are offered for dollars at any exchange rate S. An increase in dollar demand is caused mostly by private sector transactions in the current and capital accounts. Either an increase in demand for U.S. goods (merchandise trade in the current account) or an increase in demand for U.S. stocks and bonds (capital account inflows) will shift the dollar demand curve to the right. If private transactions in the current and capital accounts also cause shifts in the dollar supply curve, what are the corresponding factors that would lead to an increase in dollars supplied (yen demanded) at any exchange rate S?

If the exchange rate between the yen and the dollar changes from 110 yen = $1 to 100 yen = $1, then

A. The dollar has depreciated in value.

B. U.S.-made goods will become more expensive to Japanese citizens.

C. The dollar has appreciated in value.

D. Japanese-made goods will become less expensive to U.S. citizens.

E. There will be a decrease in the demand for dollars in the foreign exchange market.

Find the real exchange rate if the Nominal exchange rate is 70 Yen per dollar, the domestic price is $80 per bushel of corn and the Foreign price being 19000 Yen per bushel of corn.

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