Money, Banking, and International Financedollars while the U.S. dollar appreciated because one dollar buys more ringgits. Price of U.S.
goods became more expensive while Malaysian goods became cheaper. Malaysian imports
decrease while exports increase. Accordingly, U.S. exports and imports move in opposite
directions. The U.S. exports fall while imports rise.
Price of ringgits
$ per ringgit
Quantity of ringgits
Figure 1. Demand function for Malaysian ringgits
We show the exchange rates for Points A and B in Equations 8. We write the currency price
first while the standard exchange ratio is in brackets. As we move from Point A to Point B, the
Malaysian ringgits depreciate while the U.S. dollar appreciates.
Point A: $0.333 per 1 ringgit or [$1 = 3.0 rm] (8)Point B: $0.25 per 1 ringgit or [$1 = 4.0 rm]Supply function for ringgits originates from the Malaysian consumers who buy U.S.
products. U.S. firms sell products and services to Malaysian consumers, which are U.S. exports.
The Malaysian consumers need U.S. dollars to pay for it. Consequently, they have a demand for
dollars, converting ringgits to U.S. dollars supply ringgits on the exchange market. Demand for
ringgits in one market simultaneously creates a supply of U.S. dollars in another market, and
vice-versa.
We show the supply function for Malaysian ringgits in Figure 2. As we move from Point A
to Point B, the ringgit exchange rate rises. Consequently, the ringgit appreciated while the U.S.
dollar depreciated. Price of U.S. goods became cheaper while Malaysian goods become more
expensive. The U.S. imports decrease while U.S. exports increase. Malaysia experiences the
opposite pattern. Its imports rise while its exports fall.