Supply of shekels in the foreign exchange market

Assignment Help Business Economics

Reference no: EM131166301

The demand for and supply of shekels in the foreign exchange market is Demand = 30000 – 8000 e Supply = 25000 + 12000 e where the nominal exchange rate is expressed as dollars per shekel.

a. What is the fundamental value of the shekel?

b. The shekel is fixed at $0.30. Is the shekel overvalued, undervalued or neither? Find the balance of payments deficit or surplus in both shekels and dollars. What happens to the country’s international reserves over time?

c. Repeat part (b) for the case in which the shekel is fixed at $0.20.

Reference no: EM131166301

Questions Cloud

Briefly outline two characteristics of each market structure : For each of the following indicate what market structure best represents the good or service and briefly outline 2 characteristics of each market structure.

Frictional unemployment and structural unemployment : Okun's law expresses the relationship between: unemployment and inflation. frictional unemployment and structural unemployment, the money supply and the velocity of money. cyclical unemployment and the output gap.

Likely to affect the value of the dollar : How would each of the following be likely to affect the value of the dollar, all else being equal? Explain.

Exhibit more price instability than manufactured goods : Explain why primary goods can be expected to exhibit more price instability than manufactured goods. How could buffer stocks be used to reduce this instability?

Supply of shekels in the foreign exchange market : The demand for and supply of shekels in the foreign exchange market is Demand = 30000 – 8000 e Supply = 25000 + 12000 e where the nominal exchange rate is expressed as dollars per shekel. What is the fundamental value of the shekel?

Economy that produces and consumes hot dogs and coca cola : Consider an economy that produces and consumes hot dogs and coca cola. The table below provides the price and quantity data for hot dogs and coca cola for two years, 2005 and 2010.

Which country has higher steady state income per capita : Consider two countries ‘Milkie’ and ‘Cookie’. The two countries have identical per capita production function, y = Ak0.5, with initially the same level of technology, A = 1. Which country has a higher steady state income per capita? Determine the ste..

Standard of living in the long run : Which of the following would be the most helpful in raising Australia’s standard of living in the long run?

How does the principle of risk diversification : We observe financial capital moving in two directions, i.e., funds move from the United Kingdom to the United States at the same time that funds move from the United States to the United Kingdom. Can this be explained by funds seeking the higher rate..

User Account

All Pages