The Figure Given Below Shows the Demand Curves for Dollars

question 29

Multiple Choice

The figure given below shows the demand curves for dollars arising out of Thai demand for U.S. goods and services and the supply of dollars arising out of the U.S. demand for Thai goods, services, and financial assets. D1 and S1 are the original demand and supply curves.
Figure 18.2

-Assume that the foreign exchange market is initially at equilibrium when the demand and supply curves are D1 and S1 respectively. When the demand curve shifts from D1 to D2, the Thai government intervenes to restore the original equilibrium. If Figure 18.2 describes these changes, which of the following will be true?

• A) The baht depreciates slightly, as the equilibrium exchange rate goes down from E to F.
• B) The baht depreciates, as the equilibrium exchange rate goes up from E to G.
• C) The baht appreciates, as the equilibrium exchange rate goes down from E to D.
• D) The equilibrium exchange rate goes up from D to G.
• E) The baht appreciates slightly, as the equilibrium exchange rate goes up from E to F.

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Definitions:

CIFP Course Materials

Comprehensive learning materials provided for the Certified Financial Planner (CIFP) program covering financial planning, investment strategies, and ethical practices.

Ordinary Annuity

A financial product where payments are made at the end of each period for a fixed amount of time.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, often used in the discounting of future income streams or liabilities.

Compounded Annually

Interest that is calculated once a year and added to the principal, meaning each year's interest earns interest in subsequent years.