Fixed exchange rates Consider the exchange rate between the Malaysian ringgit an

Question

Fixed exchange rates Consider the exchange rate between the Malaysian ringgit and the euro. Suppose the Malaysian government and the euro zone governments agree to fix the exchange rate at 2 ringgit per euro. Refer to the following graph when answering the questions that follow. At the official exchange rate, the euro is, and the Malaysian ringgit is, which means that Malaysians pay for European exports than they would with a free-floating exchange rate. At the official ringgit price of euros, there is a equal to in the foreign exchange market. Suppose the governments in the euro zone and Malaysia agree to change the official exchange rate from 2 ringgit per euro to 4 ringgit per euro. The action represents of the euro and a of the

Explanation / Answer

1. euro is undervalued

2. Raggit is Overvalued

3. Less

4. Shortage equal to 8 billion euros

5. Revaluation of the euro

and Devaluation of ringgit

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