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

-Refer to Figure 15.1.Suppose the United States decreases investment spending in Switzerland,thus reducing the demand for francs from D0 to D2.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
 
-Refer to Figure 15.1.Suppose the United States decreases investment spending in Switzerland,thus reducing the demand for francs from D0 to D2.Under a floating exchange rate system,the new equilibrium exchange rate would be:

Quizplus · Accepted Answer

The decrease in investment spending in Switzerland reduces the demand for francs, shifting the demand curve to the left. This leads to a depreciation of the franc, resulting in a new equilibrium exchange rate of $0.40 per franc.

Figure 151 Shows the Market for the Swiss Franc