Suppose that the equilibrium exchange rate between U.S. dollar and the Indian rupee is 70 rupees per dollar.
A. Draw the foreign exchange market graph, clearly marking the supply and demand curve for dollars and the equilibrium exchange rate.
B. What will happen to the value of the dollar (appreciate or depreciate) if the interest rate in India rises relative to the interest rate in the United States? Justify your answer.
C. Illustrate your answer to part B on the graph.

Question

Quizplus · Accepted Answer

The Answer of Suppose that the equilibrium exchange rate between U.S. dollar and the Indian rupee is 70 rupees per dollar.
A. Draw the foreign exchange market graph, clearly marking the supply and demand curve for dollars and the equilibrium exchange rate.
B. What will happen to the value of the dollar (appreciate or depreciate) if the interest rate in India rises relative to the interest rate in the United States? Justify your answer.
C. Illustrate your answer to part B on the graph.

Suppose That the Equilibrium Exchange Rate Between U