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For each of the following events, draw a graph of the market for dollars and a graph of the other country's currency market. Illustrate how the event will affect each of the markets. State whetherthe dollar will appreciate or depreciate. State whether the foreign currency will appreciate or depreciate. a. American travel to Europe increases. Market for dollars: Demand for Dollars: Supply of Dollars: A. Increases O B. Decreases O A. Increases O B. Decreases O C. Does not change C. Does not change The dollar (D A. Appreciates O B. Depreciates ******** ******** *********~k******* ***************** b. Japanese investors purchase US. stock. Market for dollars: Demand for Dollars: Supply of Dollars: A. Increases O A. Increases O B. Decreases O B. Decreases O C. Does not change C. Does not change Market for Euros: Demand for Euros: Supply of Euros: O A. Increases O A. Increases B. Decreases O B. Decreases O C. Does not change C. Does not change The Euro 0 A. Appreciates B. Depreciates *Hmic-kim *******t*~k******r *******ti******** ******** Market for Yen Demand for Yen: Supply of Yen: O A. Increases O A. Increases B. Decreases O B. Decreases O C. Does not change C. Does not change The dollar A. Appreciates O B. Depreciates *******w*************w*ww*******w*************w**w c. U.S. real interest rates increase relative to European interest rates. Market for dollars: Demand for Dollars: Supply of Dollars: A. Increases O A. Increases O B. Decreases O B. Decreases O C. Does not change C. Does not change The dollar 0 A. Appreciates O B. Depreciates *******************************t****************** The Yen O A. Appreciates B. Depreciates ************w**w****************w*******w********* Market for Euros: Demand for Euros: Supply of Euros: O A. Increases O A. Increases B. Decreases O B. Decreases O C. Does not change C. Does not change The Euro 0 A. Appreciates O B. Depreciates ******i****t**t****************i***********t***** d. European countries become less economically stable relative to the U.S. Market for dollars: Market for Euros: Demand for Dollars: Supply of Dollars: Demand for Euros: Supply of Euros: O A. Increases O A. Increases O A. Increases O A. Increases O B. Decreases O B. Decreases O B. Decreases O B. Decreases O C. Does not change O C. Does not change O C. Does not change O C. Does not change The dollar The Euro O A. Appreciates O A. Appreciates O B. Depreciates O B. Depreciates * ************************************************* ************************************************ ** e. The U.S. inflation rate increases relative to Europe's inflation rate. Market for dollars: Market for Euros: Demand for Dollars: Supply of Dollars: Demand for Euros: Supply of Euros: O A. Increases O A. Increases O A. Increases O A. Increases O B. Decreases O B. Decreases O B. Decreases O B. Decreases O C. Does not change O C. Does not change O C. Does not change O C. Does not changeThe dollar The Euro O A. Appreciates O A. Appreciates O B. Depreciates O B. Depreciates *********************************************** * * * *********************************************** * ** f. The U.S. tariff on Japanese produced cars decreases. Market for dollars: Market for Yen Demand for Dollars: Supply of Dollars: Demand for Yen: Supply of Yen: O A. Increases O A. Increases O A. Increases O A. Increases O B. Decreases O B. Decreases B. Decreases O B. Decreases O C. Does not change O C. Does not change O C. Does not change O C. Does not change The dollar The Yen O A. Appreciates O A. Appreciates O B. Depreciates O B. Depreciates