(a) Based on Traditional Approach, determine how the quantity of a currency demanded and supplied in the foreign exchange market are derived.

(b) Distinguish between J-Curve effect and Pass-Through effect. Determine how the two effects help to improve the current account deficit.

(c) Suppose Malaysia experiences an economic contraction. Based on the absorption approach equation, there is a tendency for the value of Ringgit Malaysia (RM) to appreciate instead of depreciating. Analyze how do changes in real income and absorption affect the exchange value of domestic currency.

(d) Illustrates a simplified balance sheet of Bank Negara Malaysia. Assume that U.S. Federal Reserve purchases securities from Malaysia worth USD200,000 at an exchange rate of RM4/$. Find the changes in the Bank Negara Malaysia’s balance sheet.

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Based on Traditional Approach determine how the quantity of a currency demanded and supplied in the foreign exchange market are derived A foreign exchange market is where one currency is traded for an... View the full answer