Econ help pleaseeee non econ major.
I am not a finance major or econ major, but have to take an econ class as a requirement. I have a final coming up and professor gave us a review sheet with no answers to it..So I've been searching Google for the answers so I can study and came across this site..
Suppose Morocco decides to devalue the Dirham. I got question A and B, just having trouble with CDE
a. What happens to the price of imports? Why?- Imports would go up because it becomes cheaper for foreign countries to buy goods (got this)
b. What happens to the price of exports? Why? Exports will go down because it will be more expensive to buy goods from another country since the Dirham got devalued.
c. If the elasticity of demand for imports into Morocco is zero, what happens to the quantity of imports into Morocco? Why? What happens to the value of imports?
d. If the elasticity of demand for Moroccan goods from foreigners is zero, what happens to the quantity of exports from Morocco? Why? What happens to the value of exports?
e. Given your answers to (a) through (d), does the balance of trade rise, fall, or stay the same after the devaluation?
A. What happens to the BOP if neither the economy nor the domestic credit is growing, but there is foreign inflation?
B. How can a central bank reduce its BOP deficit? By reducing the relative value of its currency, increasing exports reducing imports.
C. Can a country grow out of a BOP deficit?
What is the effective return differential between domestic and foreign assets?
What is the conceptual difference between the forward rate and the expected future spot? Forward rate is the amount that cost to deliver a currency, commodity or some other asset in the future. While expected future spot rate, is the price where a particular security can be bought or sold at specified time and place. So in theory the difference between spot and forward should be equal to the finance changes, plus any earnings due to the holder of the security according to the cost and carry model.
Please help me...Its only this theory part I don't get, the math part of the test I have locked down. .
I'm pretty sure you're A/B are wrong.
a) & b) are wrong, other way around. Your currency buys less foreign shit but foreigners can switch their currencies at cheaper rate so can buy more of your exports.
c) if elasticity of import demand = 0 then number of goods demanded doesnt change. But your currency devalued so imports cost more, so value of imports increases
d) similar for exports, exports value decrease.
e) BoP= Imports - Exports
A) Foreign inflation > domestic inflation => their price level higher than yours. Think in terms of real exchange rate.
A.The price of imports rises imagine Product X is 5 USD, if the Dirham has a 1:1 peg it is 5 Dirham, let's say it now takes two dirahms to make one USD, the price is now 10 Dirham.
B. Price of exports denominated in Dirhams will go down as 1 dollar now will buy 2 dirham's of stuff.
C. Quantity is unchanged, because it is has no price elasticity. The value goes up because each dirham buys less non-dirham denominated goods.
I'd help more but I need to run
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