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 D? and S? respectively.
Figure 15.1. The Market for the Swiss Franc

-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 D? to D?.Under a floating exchange rate system,the new equilibrium exchange rate would be:
A) $0.40 per franc
B) $0.50 per franc
C) $0.60 per franc
D) $0.70 per franc

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 D? and S? respectively.
Figure 15.1. The Market for the Swiss Franc
 
-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 D? to D?.Under a floating exchange rate system,the new equilibrium exchange rate would be:
A) $0.40 per franc 
B) $0.50 per franc 
C) $0.60 per franc 
D) $0.70 per franc

Quizplus · Accepted Answer

When the demand for francs increases, the demand curve shifts rightwards from D? to D?. As a result, the exchange rate of francs will appreciate. This means that fewer francs will be required to buy one dollar. Hence, the equilibrium exchange rate will move towards the intersection of the new demand curve (D?) and the supply curve (S?), which is $0.60 per franc. Therefore, the correct answer is C) $0.60 per franc.

Figure 151 Shows the Market for the Swiss Franc