4. Exchange rate crisis The following graph shows the market for euros in terms of the Malaysian ringgit. The market is initially in equilibrium at 1 ringgit per euro and 30 billion euros traded per day. Suppose the ringgit falls in value, causing investors to sell their ringgit-denominated assets and to sell ringgit for euros in order to buy euro-denominated assets. As a result, the demand for euros shifts to the right, from Do to D₁. EXCHANGE RATE (Ringgit per euro) 2.0 1.8 1.6 1.4 1.2 42, 1 1.0 0.8 0.6 0.4 0.2 22 Supply D₁ Do 0 06 12 18 24 30 36 42 48 54 60 QUANTITY OF EUROS (Billions) (?) If Malaysia wants to maintain a fixed exchange rate of 1 ringgit per euro, it should policy would have to euros by euros in the foreign exchange market. To be successful, this billion euros at any given exchange rate. In this type of situation, a speculative attack may occur if investors believe which of the following statements? Malaysia is running out of euro reserves. Malaysian assets are soon going to increase in value. The demand for Malaysian goods is going to dramatically increase. True or False: In the event of a successful speculative attack, Malaysian businesses tend to suffer because their foreign debt will now cost more to repay. O True False
4. Exchange rate crisis The following graph shows the market for euros in terms of the Malaysian ringgit. The market is initially in equilibrium at 1 ringgit per euro and 30 billion euros traded per day. Suppose the ringgit falls in value, causing investors to sell their ringgit-denominated assets and to sell ringgit for euros in order to buy euro-denominated assets. As a result, the demand for euros shifts to the right, from Do to D₁. EXCHANGE RATE (Ringgit per euro) 2.0 1.8 1.6 1.4 1.2 42, 1 1.0 0.8 0.6 0.4 0.2 22 Supply D₁ Do 0 06 12 18 24 30 36 42 48 54 60 QUANTITY OF EUROS (Billions) (?) If Malaysia wants to maintain a fixed exchange rate of 1 ringgit per euro, it should policy would have to euros by euros in the foreign exchange market. To be successful, this billion euros at any given exchange rate. In this type of situation, a speculative attack may occur if investors believe which of the following statements? Malaysia is running out of euro reserves. Malaysian assets are soon going to increase in value. The demand for Malaysian goods is going to dramatically increase. True or False: In the event of a successful speculative attack, Malaysian businesses tend to suffer because their foreign debt will now cost more to repay. O True False
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter13: Open-economy Macroeconomics: Basic Concepts
Section: Chapter Questions
Problem 6PA
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Transcribed Image Text:4. Exchange rate crisis
The following graph shows the market for euros in terms of the Malaysian ringgit. The market is initially in equilibrium at 1 ringgit per euro and 30
billion euros traded per day. Suppose the ringgit falls in value, causing investors to sell their ringgit-denominated assets and to sell ringgit for euros in
order to buy euro-denominated assets. As a result, the demand for euros shifts to the right, from Do to D₁.
EXCHANGE RATE (Ringgit per euro)
2.0
1.8
1.6
1.4
1.2
42, 1
1.0
0.8
0.6
0.4
0.2
22
Supply
D₁
Do
0
06 12
18
24
30
36
42
48
54
60
QUANTITY OF EUROS (Billions)
(?)
If Malaysia wants to maintain a fixed exchange rate of 1 ringgit per euro, it should
policy would have to
euros by
euros in the foreign exchange market. To be successful, this
billion euros at any given exchange rate.
In this type of situation, a speculative attack may occur if investors believe which of the following statements?
Malaysia is running out of euro reserves.
Malaysian assets are soon going to increase in value.
The demand for Malaysian goods is going to dramatically increase.
True or False: In the event of a successful speculative attack, Malaysian businesses tend to suffer because their foreign debt will now cost more to
repay.
O
True
False
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