1 True/False and explain. If the answer is true, no need to ex- plain. If the answer is false, please provide a short explanation. All credits will be given to your explanation. 1. [2] In a foreign exchange market, an increase in exchange rate will cause a shift in the demand curve for foreign exchange since the domestic currency is stronger. 2. [2] A right shift in the demand for foreign exchange will cause a shortage in foreign exchange, which will lead to a depreciation of the domestic currency (Hint: draw a picture). 3. [2] A negative supply shock will lead to a depreciation of the domestic currency (Hint: draw a picture). 4. [2] A favorable change in US tastes regarding Canadian goods will cause a right shift in the supply curve of foreign exchange. 5. [2] The demand for foreign exchange is positively slopped whereas the supply is negatively slopped. 6. [3] Two simultaneous favorable demand and supply shocks will definitely increase the exchange rate. 7. [3] Two simultaneous negative demand and supply shocks will definitely decrease the exchange rate. 8. [4] A simultaneous favorable (positive) demand shock and negative supply shock will definitely change the quantity of foreign exchange in the foreign exchange market but the effect on ER will be ambiguous. (Hard: draw three graphs next to each others and make an analysis)