Chapter 22 or 35 International Finance: Pre-Class & In-Class Activities Packet Name/I.D. Number:_______________________________________ Section: __________________ Date: _______________ Part 3. Discussion Questions and Problems 2. The lower the dollar price of a peso, the higher the quantity demanded of pesos, and the lower the quantity supplied of pe sos. Do you agree or disagree? Explain. ___________________________________________________________________________________________________________________ ___________________________________________________________________________________________________________________________ 4. Suppose the United States and Japan have a flexible exchange rate system. Explain whether each of the following events will lead to an appreciation or depreciation in the U.S. dollar and Japanese yen. a. U.S. real interest rates rise above Japanese real interest rates._________________________________________________________ ________ b. The Japanese inflation rate rises relative to the U.S. inflation rate.____________________________________________________ ___________ c. U.S. income increases with no change in Japanese__________________________________________________________________________ 6. Explain the details of the purchasing power parity (PPP) theory. ________________________________________________________ ______________ ___________________________________________________________________________________________________________________________ 8. What does it mean to say that a currency is overvalued? undervalued? ___________________________________________________________________________________________________________________________ 10. What is an optimal currency area? _______________________________________________________________________________________ ______