Supply-demand diagram of foreign exchange market for dollar

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Reference no: EM131173488

a) Draw a supply-demand diagram of the foreign exchange market for the dollar (valued in “euros”) and don’t forget to label the axes. In this market, who demands dollars? Who supplies dollars?

b) If, in more usual economic times (rather than a deep recession), the Fed were to announce an increase in the Fed funds rate, what would you expect to happen to the value of the dollar? Show your answer on the graph and briefly explain it.

Reference no: EM131173488

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