The Demand for the Franconian Franc in the Foreign Exchange

question 131

Multiple Choice

The demand for the Franconian franc in the foreign exchange market equals 14,000 - 3,000e and the supply of francs in the foreign exchange market equals 2,000 + 2,000e, where e is the nominal exchange rate expressed in U.S. dollars per franc. If the franc is fixed at 2 U.S. dollars per franc, then to maintain this fixed rate Franconia's international reserves must:

• A)decrease by 2,000 francs per period.
• B)increase by 4,000 francs per period.
• C)decrease by 4,000 francs per period.
• D)increase by 2,000 francs per period.

Recognize the impact of regulatory changes on financial instruments and institutions.

Grasp the concept of free cash flow and its components in financial management.

Understand the differences between various types of investment funds and their regulatory environments.

Know the influence of share price on firm behavior and its societal implications.

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Definitions:

Cost Minimization Problem

An optimization problem faced by firms aiming to produce a specified level of output at the lowest possible cost, considering both fixed and variable costs.

Marginal Product

The marginal product is the additional output resulting from the use of one more unit of a production input, holding all other inputs constant.

Key Assumptions

Fundamental beliefs or principles that are accepted as true without proof, used as the basis for reasoning, discussion, or calculation.

Production Function

An equation that describes the relationship between inputs (like labor and capital) and the maximum output that can be produced with those inputs.