HW #9: PROBLEM SET Models of Exchange Rate Determination 1) Exchange rates: Using the internet, find and report the current exchange rates between the US dollar and the Euro, the Japanese Yen, the British pound, and the Chinese RMB (yuan). Convert and report these exchange rates in terms of the standard economics representation of exchange rates domestic/foreign). If the exchange rate, E, goes up, what will happen to the value of the US dollar, and US imports and US exports? 2) Balance of Payments Accounting: Briefly explain the system of the Balance of Payments Accounting for a country, including an explanation of the current account, the capital account, and the financial account. 3) The Uncovered Interest Parity Condition: Write down the equation for Uncovered Interest Rate Parity (UIP) and explain it. Why should UIP occur? 4) The Overshooting Model of Exchange Rate Determination: Use graphs and charts to illustrate and explain the Overshooting Model of Exchange Rate Determination. Use causal chain diagrams and time series graphs to show the time series response of each of the variables in the model. 5) Purchasing Power Parity (PPP): Write down the equation for PPP, and explain it, justifying the argument by appealing to the idea of the Law of One Price. What does PPP imply? Why might PPP not occur? 6) The Monetary Model of Exchange Rate Determination: Use graphs and equations to illustrate and explain the Monetary Model of Exchange Rate Determination. What are the effects of money supply, interest rates, prices, and GDP upon the exchange rate? 7) The General Model of Exchange Rate Determination: Use graphs and equations to illustrate and explain the General Model of Exchange Rate Determination. What are the effects of money supply, interest rates, prices, and GDP supply and demand upon the exchange rate?