Demand for a country's currency in the foreign exchange market is given by where XR is...
- Demand for a country's currency in the foreign exchange market
is given by
where XR is the US dollar price of the currency, and A is the quantity of the currency.
- Supply for Country A's currency in the foreign exchange market
is given by
- The central bank of the country fixes the exchange rate at 62 USD.
The central bank needs to sell A = ________ in the foreign exchange market to maintain the fixed exchange rate.
[Fill in the blank with ONLY numerical values. For example, if the central bank needs to sell 100 units of the domestic currency, enter 100.]
Homework Answers
The Demand of country's currency = XR=200-0.5A
where,A is quantity of currency,XR is US Dollar price.
The central bank wants to the exchange rate at 62 USD
Lets calculate the demand for currency
XR=200-0.5A
62=200-0.5A
0.5A= 200-62
A= 138/0.5=276
Supply of country's currency
XR=10+0.5A
62=10+0.5A
62-10=0.5A
A= 52/0.5=104
Hence Demand is more and supply of the currency is less. So the price of USD is likely to increase
So in order to manitain the exchange rate at 62 USD
The cenral bank needs to sell A=(276-104) 172 in order to manitain the fixed exchange rate.
So that supply icreases and exchange rate reamins constant.
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