You are given the following information Quantity of imports Quantity of exports

Question

You are given the following information Quantity of imports Quantity of exports 100 15 15 1.50 Foreign currency price of imports Dormestic currency price of esports Exchango rale The foreign currency and domestic currency values of imports are respectively eqeal to A: 1500 and 2250. B: 1440 and 1050. C: 2250 and 1500. D 1500 and 1000. E. 1000 and 1500. 2. The domestic currency and foreign currency values of exports are respectively equal to 1500 and 2250 1440 and 1050. C: 1500 and 1000. D 1000 and 1500. 1500 and 1500 If the exchange rate is 150 and the elasticity of export demand and import demand are -0.4 and 0.20 respectively, then the balance of payment will be in value will be equal to and its foreign currency A: deficit; 500.00 B: deficit;-553.60 C surplus; +34.00 D: deficit;, -34.00. E: balance; 00.00 4. If the exchange rate increases from 1.5 to 1.80 and the elasticity of export demand and import demand are-1.8 and-1.5 respectively, then the balance of payment will be in and its foreign currency value will be equal to A: deficit,-553.60 B: surplus; +500.00 C: surplus; +34.00 D: deficit; -34.00. E: balance; 00.00 The demand for foreign exchange falls as the exchange rate (S) rises because: A the domestic currency price of imports rises. B: the demand for imports falls. C the demand for exports falls D: E. A change in the exchange rate (S) affects: A: the domestic currency price of exports. B: the domestic currency price of imports. C the foreign currency price of exports. D: all of the above. E. Band C 5: both (A) and (B). both (A) and (C). 6: The J-curve effect describes: A: B: 7: the inverse relationship between the current account and the growth rate. the tendency for the current account to deteriorate immediately after the depreciation of the domestic currency C the tendency for exporters to reduce the foreign price of exports following the D: the depreciation of the domestic currency immediately after a fall in the domestic appreciation of the domestic currency inflation rate E) all of the above v

Explanation / Answer

First four questions answered as per Chegg policy.  FCY = foreign currency. DCY = domestic currency.

1) FCY value of imports = quantity of imports * FCY price of imports = 15 * 100 = 1500

DCY value of imports = FCY value of imports *DCY/FCY = FCY value of imports * exchange rate = 1500 * 1.5 =2250

hence A

2) DCY value of exports = quantity of exports * FCY price of exports = 100*15 = 1500

FCY value of exports = DCY value of exports / exchange rate = 1500/1.5 = 1000

hence C

3) balance of payments = export -import = FCY value of exports - FCY value of imports = 1000 - 1500 = -500

hence A

4) exchange rate increase = (1.8-1.5)/1.5 = 20%

export demand change = elasticity of export demand * change in exchange rate = 20% * -1.8 = -36%

import demand change = elasticity of import demand * change in exchange rate = 20% * -1.5 = -30%

Exports = (1+export demand change) * previous exports = (1-.36)*100 = 72

Imports = (1+import demand change) * previous imports = (1 - .3) * 100 = 70

FCY value of imports = quantity of imports * FCY price of imports = 70 * 15 = 1050

FCY value of exports = quantity of exports * FCY price of exports / exchange rate = 72 * 15 / 1.8 = 600

balance of payments = export -import = FCY value of exports - FCY value of imports = 600 - 1050 =-450

closest option is A

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