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Author Question: Refer to Figure 19-9. According to the graph, is there a surplus or shortage of Saudi Arabian riyal ... (Read 31 times)

Charlie

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on: Jun 29, 2018
Refer to Figure 19-9. According to the graph, is there a surplus or shortage of Saudi Arabian riyal in exchange for U.S.
 
  dollars? To maintain the pegged exchange rate, will the Saudi central bank need to buy riyal in exchange for dollars or sell riyal in exchange for dollars? How many riyal will the Saudi central bank need to buy or sell?

Question 2

If the exchange rate between the Mexican peso and the U.S. dollar expressed in terms of pesos per dollar is 13.5 pesos = 1 dollar, what is the exchange rate when expresses in terms of dollars per peso?
 
  What will be an ideal response?


braelync

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Reply #1 on: Jun 29, 2018
Answer to Question 1

There is a surplus of riyal in exchange for U.S. dollars, because at the pegged exchange rate the quantity of riyal demanded is less than the quantity of riyal supplied. To maintain the pegged exchange rate, the Saudi central bank will have to buy riyal in exchange for dollars. The Saudi central bank will have to buy 70 million riyal per day.

Answer to Question 2

If 13.5 pesos = 1 dollar, then 1 peso = 1 / 13.5 = 0.074 dollars.


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