Exchange rates

Numerical examples on P 334

Exchange Rate Determinant Exercises.

Determine the effect on the U.S. Dollar ($US) / IDR exchange rate when the following events take place – ie you are focusing on the $US and how these events will change how many IDR one $US will buy. Assume that the CURRENT exchange rate is 1$US buys 11500 IDR and show this and the NEW (approximate!) exchange rate on your diagram.

1. There is an increase in U.S. exports of computers to Indonesia.

2. More tourists travel from the U.S. to Indonesia.

3. Speculators think that the value of the IDR is going to fall due to political instability in Indonesia.

4. Interest rates in Indonesia increase.

5. Indonesian companies decide to start new businesses in the U.S.

6. Economic growth increases in Indonesia. (tricky…)

7. Inflation increases in the US