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Foreign Exchange and Balances for Baht

A) Following the decrease in the demand for the Baht, has the Baht appreciated or depreciated in relation to the US dollar?

B) Suppose that the Bank of Thailand desires to push the equilibrium exchange rate back to a value of $.27 per Baht. How could the Bank of Thailand accomplish this objective by inducing the demand for Baht to rise the to its original level?
- The Bank of Thailand could induce the demand curve for Baht to shift back to its original position by decreasing interest rates.
- The Bank of Thailand could induce the demand curve for Baht to shift back to its original position by drawing on its foreign exchange reserves and exchanging U.S. dollars for Baht.
- The Bank of Thailand could induce the demand curve for Baht to shift back to its original position by using expansionary monetary policy.

Solution Preview

Part A
Since the demand for the Baht has decreased, it will depreciate in relation to the US dollar.
The demand curve for the Baht shifts to the left and the equilibrium exchange rate (US dollars/Baht) shifts down. ...

Solution Summary

This solution looks at the exchange rate between the Thai Bath and the US dollar

$2.19