Philip Leatherwood, Lecturer

Kazakhstan Institute of Management, Economics, and Strategic Planning

18 January, 2001

1. Discussion of Purchasing Power Parity
2. On pages 531 and 532 of our reading, four examples are given of how supply and demand are "generated." A graph of the market for Deutchmarks shows the changes in supply and demand. Trace the equivilent four changes in the market for British Pound Sterling.
3. Suppose that Nazarbaev has dictated that the Tenge must be valued at between 140 Tenge, and 148 Tenge to the dollar. What policies should be followed in response to the following situations:
1. Because of new oil discoveries in the Caspian Sea, the Tenge strengthens to 138 to the dollar.
2. Because of a sudden increase in the demand for mobile phones and Mercedes, the Tenge devalues to 150 tenge.
4. What are the advantages and disadvantages of—
1. Lower exchange rates?
2. Higher exchange rates?
5. What are the advantages and disadvantages of targeting particular exchange rates?