Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and supply of marks are depicted by D0 and S0 respectively.
Figure 15.1. The Market for the Swiss Franc
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-Refer to Figure 15.1.Suppose that the United States increases its imports from Switzerland, resulting in a rise in the demand for francs from D₀ to D₁.Other things equal, under a floating exchange rate system, the new equilibrium exchange rate would be

Question

Figure 15.1 shows the market for the Swiss franc. In the figure, the initial demand for marks and supply of marks are depicted by D0 and S0 respectively.
Figure 15.1. The Market for the Swiss Franc
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-Refer to Figure 15.1.Suppose that the United States increases its imports from Switzerland, resulting in a rise in the demand for francs from D₀ to D₁.Other things equal, under a floating exchange rate system, the new equilibrium exchange rate would be

Quizplus · Accepted Answer

When the United States increases its imports from Switzerland, the demand for Swiss francs increases. Under a floating exchange rate system, this increased demand for francs would lead to an appreciation of the franc relative to the dollar. Therefore, the new equilibrium exchange rate would be higher than before, making option C ($0.60 per franc) the correct answer as it represents an increase in the value of the franc.

Figure 151 Shows the Market for the Swiss Franc