Question

The spot exchange rate between the dollar and Swiss franc is a floating, or flexible, exchange...

The spot exchange rate between the dollar and Swiss franc is a floating, or flexible, exchange rate. What are the effects of each of the following 2 distinct scenarios on this exchange rate for dollar? Hint: Franc/Dollar is the exchange rate in interest.

1-There is a large increase in Swiss demand for US exports as US culture becomes more popular in Switzerland.

A-Dollar depreciates

B-Dollar appreciates

C-Indeterminate

D-Stay the same

2-There is a large increase in Swiss demand for investments in the US dollar denominated financial assets because of a Swiss belief that the US economy and political situations are improving markedly.

A-Dollar depreciates

B-Dollar appreciates

C-Indeterminate

D-Stay the same
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Answer #1

Ans)the correct option is B-Dollar appreciates. since the us Culture has become more popular in Switzerland so the for US exports will increase which will further lead to an increase is US dollar and supply for swiss Franc will go up. The exchange rate e= $/ Swiss Franc goes down and dollar appreciates

Ans)the correct option is B dollar appreciates. the demand for dollar goes up and supply for swiss Franc goes up. This will lead to decrease in exchange rate and dollar will appreciate.

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