Answer to Question #152552 in Macroeconomics for Rafayet

Question

Colombia is the world’s biggest producer of roses. The global demand for roses increases and at the
same time, the central bank in Colombia increases the interest rate. In the foreign exchange market
for Colombian pesos, what happens to?
a. The demand for pesos?
b. The supply of pesos?
c. The exchange rate of the peso against the U.S. dollar?

Answer 1

a. The demand for pesos may either increase or decrease as a result of the increases in demand for roses and in the interest rate.

b. The supply of pesos will decrease.

c. The exchange rate of the peso against the U.S. dollar may either increase or decrease.