QUESTION 9 Assume that Japan and the United States are engaged in a system of fl

Question

QUESTION 9 Assume that Japan and the United States are engaged in a system of flexible exchange rates Supplyyen 0.80 Demandyen Quantity of Yen Refer to the above graph. One U.S. dollar will purchase how many Japanese yen? 0 80 120 125 140 QUESTION 10 Suppose the rate of interest in Finland (the home country) is higher than the rate of interest in Mexico. Other things being equal, this wil O a. Increase the demand for the euro. b. Decrease the quantity demanded for the euro. C.Decrease the demand for the euro. d. Increase the quantity demanded for the euro.

Explanation / Answer

Ans)

9.

125

$0.8=100 Yen $1=100/0.8 Yen
$1=125 Yen

10.

a. increase the demand for the euro

Interest rates are an important factor in the determination of the value of currency.Usually higher interest rates increase the demand for and the value of the home currency.

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