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WorksheetsFloating Exchange Rates
Total questions: 12
Worksheet time: 8mins
The higher the ER (exchange rate) for CHF/€
the more people from the Euro zone want to buy CHF
the more people from the Euro zone demand €
the more people from Switzerland demand €
the higher the supply of CHF
If the ER for CHF/€ increases
demand for CHF decreases
supply of € increases
the lower the demand for €
supply of CHF decreases
Imports from USA into Euro zone are increasing. Reasons could be
increased income in euro zone
inflation in euro zone
demand increases faster than supply in euro zone
prices in USA increased
If imports from Switzerland to the Euro zone decrease (a) of € decreases as well.
If exports from Europe to the USA increase the (a) for € increases as well.
The reasons for increasing exports from Europe to foreign countries can be
less inflation in Europe
higher inflation in Europe
less competition in Europe and therefore high prices
better technologies and therefore better economies of scale in Europe
Decreasing exports from the EU to the USA mean
increasing supply of €
decreasing supply of €
increasing demand for €
decreasing demand for €
If the demand for € decreases, the ER of CHF/€
increases
decreases
remains the same
exports to Switzerland increase
If Germany experiences a boom and the economy in the USA is in a downturn, demand for €
remains the same
increases
decreases
Inflation in Germany is higher than inflation in the USA. Therefore, demand for $
decreases
increases
remains the same
Demand for $ (a) as real income in Germany decreases.
In order to keep the own currency in a certain range, governments can sell foreign currencies to increase the ER. This is because
the demand for own currency increases and ER increases
supply of own currency increases, ER goes up
demand for foreign currency increases
demand for foreign currency decreases
