50.1K
Verified Solution
Link Copied!
c)
Consider the case of the exchange rate between the U.S. dollar and German euro, where S is the
nominal German-euro-per-U.S.- dollar exchange rate in Table 1. Indicate the formula and find
the real exchange rate in year 2019 and 2020. Based on the findings, what can you conclude on
the value of U.S. dollar relative to German euro? (Please use four decimal points)
Table 3:
Year
S
U.S. CPI
German CPI
2019
0.7
220
102
2020
0.9
235
107
Note: CPI stands for Consumer Price Index
(6 marks)
(d)
Policymakers may intervene in foreign exchange market if they prefer their currency value to
remain stable relative to another currency. Explain how Australian policymakers anchor the value
of their currency when there is an increase in the demand for Australian goods by Malaysian
consumers.
(5 marks)
Answer & Explanation
Solved by verified expert
