FX Market Free response 1. The foreign exchange market for Swiss francs (CHF) is shown below;...

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FX Market Free response 1. The foreign exchange market for Swiss francs (CHF) is shown below; the U.S. dollar is the pricing currency and the current exchange rate is $1.05/CHF. e$/CHF $1.05/CHF = e S D QCHF millions A. You need to convert some Swiss francs into euros (€). In addition to quoting the dollar/franc exchange rate as $1.05/CHF, your bank indicates that the dollar/euro exchange rate is $1.15/€. What is the euro/franc (€/CHF) exchange rate? B. Suppose Swiss households and firms increase their demand for U.S. goods and services and simultaneously increase their demand for U.S. assets. Show what happens in the foreign exchange market diagram (i.e. how the supply and demand curves are affected) by re- drawing the diagram with the new equilibrium. Describe what happens to the spot exchange rate and quantity of foreign currency in the new equilibrium. C. Suppose the Swiss National Bank (SNB) stabilizes (or wants to keep fixed) the value of the franc at its initial exchange rate, $1.05/CHF, as Swiss households and firms increase their demand for U.S. goods, services, and assets. Show on the figure the "excess" demand or supply of the Swiss Franc and describe what the Swiss National Bank would do through intervention in the foreign exchange market, in both francs and dollars, in order to accomplish this objective. D. What are two other policy maneuvers (other than official intervention) available to the SNB that can keep the exchange rate fixed at $1.05/CHF, given the rise in demand for U.S. goods, services, and assets? Assuming that the SNB wants to hold on to its fixed exchange rate, why might it have to choose between the two and would not be able to do both at the same time? FX Market Free response 1. The foreign exchange market for Swiss francs (CHF) is shown below; the U.S. dollar is the pricing currency and the current exchange rate is $1.05/CHF. e$/CHF $1.05/CHF = e S D QCHF millions A. You need to convert some Swiss francs into euros (€). In addition to quoting the dollar/franc exchange rate as $1.05/CHF, your bank indicates that the dollar/euro exchange rate is $1.15/€. What is the euro/franc (€/CHF) exchange rate? B. Suppose Swiss households and firms increase their demand for U.S. goods and services and simultaneously increase their demand for U.S. assets. Show what happens in the foreign exchange market diagram (i.e. how the supply and demand curves are affected) by re- drawing the diagram with the new equilibrium. Describe what happens to the spot exchange rate and quantity of foreign currency in the new equilibrium. C. Suppose the Swiss National Bank (SNB) stabilizes (or wants to keep fixed) the value of the franc at its initial exchange rate, $1.05/CHF, as Swiss households and firms increase their demand for U.S. goods, services, and assets. Show on the figure the "excess" demand or supply of the Swiss Franc and describe what the Swiss National Bank would do through intervention in the foreign exchange market, in both francs and dollars, in order to accomplish this objective. D. What are two other policy maneuvers (other than official intervention) available to the SNB that can keep the exchange rate fixed at $1.05/CHF, given the rise in demand for U.S. goods, services, and assets? Assuming that the SNB wants to hold on to its fixed exchange rate, why might it have to choose between the two and would not be able to do both at the same time?

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A Euro to Swiss Franc Exchange Rate We cannot directly calculate the eurofranc exchange rate from the given information However we know the following ... View the full answer