The Exchange rate and the balance of payments

Use the following data to work Problems 1 to 3 The U.S. dollar exchange rate increased from $0.96 Canadian in June 2011 to $1.03 Canadian in June 2012, and it decreased from 81 Japanese yen in June 2011 to 78 yen in June 2012

1. Did the U.S. dollar appreciate or depreciate against the Canadian dollar? Did the U.S. dollar appreciate or depreciate against the yen?

2. What was the value of the Canadian dollar in terms of U.S. dollars in June 2011 and June 2012? Did the Canadian dollar appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012?

3. What was the value of 100 yen in terms of U.S dollars in June 2011 and June 2012? Did the yen. appreciate or depreciate against the U.S. dollar over the year June 2011 to June 2012?

4. On March 30, 2012, the U.S. dollar was trading at 82 yen per U.S. dollar on the foreign exchange market. On August 30, 2012, the U.S. dollar was trading at 79 yen per U.S. dollar.

a. What events in the foreign exchange market could have brought this fall in the value of the U.S. dollar?

b. Did the events you've described change the demand for U.S. dollars, the supply of U.S. dollars, or both demand and supply in the for eign exchange market?

5. Colombia is the world's biggest producer of roses. The global demand for roses increases and at the same time Columbia's central bank in- creases the interest rate. In the foreign exchange market for Colombian pesos, what happens to

a. The demand for pesos?

b. The supply of pesos?

c. The quantity of pesos demanded?

d. The quantity of pesos supplied?

e. The peso U.S. dollar exchange rate?