SOALANSATU (25 MARKAH)

QUESTION ONE (25 MARKS)

1. Distinguish between devaluation and depreciation of domestic currency.

(2 markah/marks)

2. Suppose that the exchange rate between Malaysian ringgit and US dollar (MYR/US$) was 4.4114 on Thursday and 4.4316 on the following day.

i)Did the ringgit appreciate or depreciate to the US dollar and how much was the appreciation/depreciation (in percentage change terms)?

(3 markah/marks)

ii) Did the US dollar appreciate or depreciate to the ringgit and how much was the appreciation/depreciation (in percentage change terms)?

(3 markah/marks)

3) With the aid of foreign exchange market diagram, explain the effect of an increase in interest rate in Singapore on the Malaysian ringgit-Singapore dollar exchange rate (MYR-S$) and currency value of both countries.

(5 markah/marks)

4) "A country which adopts a fixed exchange rate system with perfect capital mobility should implement expansionary monetary policy to increase the aggregate income level". Do you agree with this statement? Explain.

(12 markah/marks)