Suppose the Federal Reserve wants to fix the U.S. exchange rate with the yen at $0.008 per yen. If the equilibrium market exchange rate were significantly lower at $0.007 per yen, what would the Fed need to do to maintain the fixed rate of $0.008 per yen

The classification of the query is characterized throughout the explanation segment below as well.

Explanation:

As even the Fed needs to improve this same exchange money supply at $0.008, and once again the exchange rate would be $0.007, amortization throughout the stock exchange would be needed to reduce the monetary value to $0.008.

To start reducing that as well, the Fed hopes to pay the dollar upon that shop and bought Yen as well as enhance the amount of money in circulation throughout the market, which would rise in value this same dollar against Yen as well as lose value the currency. This should encourage people to spend in the United States market and lower the inflation rate. At the relatively high monetary policy, this same rate has been decreasing, which will contribute to something like a capital flight throughout the Us as well as increase the value of the yen.

The correct answer is $381,250.

Explanation:

According to the scenario. the given data are as follows:

EBIT = $61,000

Cost of equity = 12%

Tax rate = 25%

So, we can calculate the current value of company by using following formula:

Current value = EBIT × ( 1 - Tax rate ) / Cost of Equity

by putting the following value:

= $61,000 × (1 - 0.25) / 0.12

= $381,250

Hence the current value of the company is $381,250.