Question

# Please solve and explain all questions Exchange rate (yen per \$) 90 100 110 120 130...

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

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

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