Suppose that the daily demand and supply for Canadian dollars in the global foreign exchange market is given by the following equations: P=2−0.1Q
P=0.5+0.05Q
​Where P is the price of the Canadian dollar in US funds and Q is the amount of Canadian dollars traded daily in the FIX market. a) Find the equilibrium market exchange rate for the Canadian dollar and the volume of the Canadian currency traded daily and draw the DD/SS diagram; b) Suppose that foreign demand for Canadian assets drives up the demand for CAD dollars to: P′=2.2−0.1Q Find the new equilibrium exchange rate and quantity of CAD dollars traded and illustrate on the graph above what happened. c) Suppose that a surge in the demand for US assets causes the supply of Canadian dollars to rise to:
Pn =0.40+0.05Q