a. Use the information in the following table to find the exchange rate if the euro and the U.S. dollar are allowed to float freely.

b. What will happen to the exchange rate if the demand for euros rises by 700 million at each price if there is no intervention?
c. Assume that the European central bank currently owns 400 million dollars and the Fed currently owns 300 million euros. If the demand for euros rises by 700 million at each price, what would the European central bank have to do to maintain a fixed exchange rate equal to the exchange rate you found in part (a)? Is this possible?

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Dollars Quantity of Euros Demanded Quantity of Euros Supplied per Euro $1.20 500 million 2,600 million 1,000 million $1.10 2,400 million $1.00 1,500 million 2,200 million $0.90 2,000 million 2,000 million $0.80 2,500 million 1,800 million