Consider the exchange rate between New Zealand and Mexico. Typically exchange ra

Question

Consider the exchange rate between New Zealand and Mexico. Typically exchange rates vary over time, sometimes quite dramatically. The following list presents various changes that may affect the exchange rate. You must use the labels on the bottom to indicate whether the change will tend to cause an appreciation, depreciation, or have no effect, in the exchange rate of New Zealand dollars relative to Mexican pesos. The magazine The Economist publishes an article indicating that analysts expect the value of Mexican pesos to rise relative to New Zealand dollars. The central bank in New Zealand announces that it is going to raise interest rates on government bonds. Based on a World Bank report, the inflation rate in New Zealand is going to be 0 percentage next year, while the inflation rate in Mexico is going to be 10 percentage. The price of a specific basket of goods in New Zealand is roughly 1.8 times higher than an identical basket of goods in Mexico, even after adjusting for the exchange rate. No Effect Appreciate Depreciate

Explanation / Answer

The following are the answers for different parts:

Ans 1. Depreciation

Ans 2. Appreciation

Ans 3. Appreciation

Ans 4. Depreciation

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---