1. If Thalland wants to maintain a fixed exchange rate of 1 baht per euro, it should ___________ euros in the foreign exchange market. To be successful, this policy would have to ___________ euros by______ billion euros at any given exchange rate.2. If investors believe the baht is going to be _________ as a result of the change in demand, a speculative attack may occur.3. True or False: in the event of a successful speculative attack. Thai businesses tend to suffer because their foreign debt will now cost more to repay.TrueFalse The following graph shows the market for euros in terms of the Thai baht. The market is initially in equilibrium at 1 baht per euro and 15 billion eurostraded per day. Suppose the baht falls in value, causing investors to sell their baht-denominated assets and to sell baht for euros in order to buy euro-denominated assets. As a result, the demand for euros shifts to the right, from Do to D₁.EXCHANGE RATE (Baht per euro)201814121.00.80.50.402003IIISupplyDo6 • 12 15 18 21QUANTITY OF EUROS (Billions)24 27 30?

The foreign exchange market or the forex market, is the largest and most liquid financial market in…

Answered: 1. If Thalland wants to maintain a…

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter34: International Finance

Section34.3: Fixed Exchange Rates

Problem 3ST

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1. If Thalland wants to maintain a fixed exchange rate of 1 baht per euro, it should ___________ euros in the foreign exchange market. To be successful, this policy would have to ___________ euros by______ billion euros at any given exchange rate.

2. If investors believe the baht is going to be _________ as a result of the change in demand, a speculative attack may occur.

3. True or False: in the event of a successful speculative attack. Thai businesses tend to suffer because their foreign debt will now cost more to repay.

True

False

The following graph shows the market for euros in terms of the Thai baht. The market is initially in equilibrium at 1 baht per euro and 15 billion euros
traded per day. Suppose the baht falls in value, causing investors to sell their baht-denominated assets and to sell baht for euros in order to buy euro-
denominated assets. As a result, the demand for euros shifts to the right, from Do to D₁.
EXCHANGE RATE (Baht per euro)
20
18
14
12
1.0
0.8
0.5
0.4
02
0
0
3
I
I
I
Supply
Do
6 • 12 15 18 21
QUANTITY OF EUROS (Billions)
24 27 30
?

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