a. Suppose that the current equilibrium exchange rate between the US dollar and Philippine peso is $0.20 per peso and the Philippine government pegged the peso to the US dollar at the rate of $0.25 per peso. Draw the market demand and supply curve of pesos for US dollars.
b. Suppose that currency traders think that the government will soon allow the peso to float. Show on the diagram how this affects the demand and supply curves.
c. How would the events in b. affect the number of pesos that the Philippine central bank must buy or sell?
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Question

Quizplus · Accepted Answer

The Answer of a. Suppose that the current equilibrium exchange rate between the US dollar and Philippine peso is $0.20 per peso and the Philippine government pegged the peso to the US dollar at the rate of $0.25 per peso. Draw the market demand and supply curve of pesos for US dollars.
b. Suppose that currency traders think that the government will soon allow the peso to float. Show on the diagram how this affects the demand and supply curves.
c. How would the events in b. affect the number of pesos that the Philippine central bank must buy or sell?
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A Suppose That the Current Equilibrium Exchange Rate Between the US