a.Draw a 2 panel diagram for a small open economy to show the market for loanable funds and the market for foreign currency exchange. Show the initial equilibrium using all the appropriate variables on the diagrams. In both diagrams, explain the source of supply and demand also.

b.Now suppose the French suddenly develop a strong taste for British Columbia wines. Show on the diagram and explain what happens to the demand for dollars in the market for foreign-currency exchange?

c. As a result of change to demand for dollars in part b) what happens to the value of dollars in the market for foreign-currency exchange? What happens to the quantity of net exports? Carefully explain all the relevant details of this part.