Will a flexible exchange rate bring the imports of goods and services into balance with the exports of goods and services? Why or why not?

*4. The accompanying chart indicates an actual newspaper quotation of the exchange rate of various currencies. On February 2, did the dollar appreciate or depreciate against the British pound? How did it fare against the Canadian dollar?

*5. Suppose the exchange rate between the United States and Mexico freely fluctuates in the open market. Indicate whether each of the following would cause the dollar to appreciate or depreciate relative to the peso.

a. an increase in the quantity of drilling equipment purchased in the United States by Pemex, the Mexican oil company, as a result of a Mexican oil discovery

b. an increase in the U.S. purchase of crude oil from Mexico as a result of the development of Mexican oil fields

c. higher real interest rates in Mexico, inducing U.S. citizens to move their financial investments from U.S. to Mexican banks

d. lower real interest rates in the United States, inducing Mexican investors to borrow dollars and then exchange them for pesos

e. inflation in the United States and stable prices in Mexico

f. an increase in the inflation rate from 2 percent to 10 percent in both the United States and Mexico g. an economic boom in Mexico, inducing Mexicans to buy more U.S.-made automobiles, trucks, electric appliances, and manufacturing equipment h. attractive investment opportunities in Mexico, inducing U.S. investors to buy stock in Mexican firms