Question

Please solve and explain all questions

Exchange rate (yen per $)	90	100	110	120	130	140
Quantity Supplied in U.S. $’s (Billions)	20	30	40	50	60	70
Quantity Demanded in U.S. $’s (Billions)	80	70	60	50	40	30

(a) What is the equilibrium exchange rate yen per dollar (how many yen do you get for a dollar)?

(b) What is the equilibrium exchange rate in dollars per yen (how many dollars do you get for a yen)?

(c) Which would you prefer to have, $5,000 dollars or 500,000 yen, if your bank will exchange yen for dollars at the equilibrium exchange rate from part (a). Explain and show your calculations

Answer 1

a)

Exchange rate (yen per $)	Quantity Supplied in U.S. $’s (Billions)	Quantity Demanded in U.S. $’s (Billions)
90	20	80
100	30	70
110	40	60
120	50	50
130	60	40
140	70	30

We observe that quantity supplied is equal to quantity demanded at 120 yens/dollar

So, equilibrium exchange rate=120 yens/dollar

b)

Equilibrium Dollar per yen=1/120=0.00833333

c)

If I have $5000,

Amount in yens that i can get from bank=120*500=600000 yens

It is higher than if i had 500000 yens

Suppose I have 500000 yens

Amount in dollars that i can get from bank=0.00833333*500000=$4166.67

It is higher than if i had $5000 yens

So,

I would prefer to have $5000