Anwser not more than 2-3 sentences: Suppose a financial crisis hits the Eurozone

Question

Anwser not more than 2-3 sentences:

Suppose a financial crisis hits the Eurozone and many of its wealthy inhabitants suddenly want to buy Swiss assets.There is additional demand for Swiss assets.

Q1) What happens to the value of the Swiss franc in terms of the euro

Q2) How are exports from and imports to Switzerland affected by this change in the exchange rate?

Q3) Suppose that the Swiss central bank wants to prevent the exchange rate movement from happening. What will it have to do in the foreign exchange market?

Explanation / Answer

1. The value of swiss francs will increase in terms of the euro because of higher demand for swiss francs.

2. Imports to Switzerland will increase because of increase in value of swiss francs because people will want more swiss francs now and in the same way Exports from Switzerland will decrease.

3. Swiss central bank should buy its currency against another currency in order to prevent the exchange rate movement from happening and in this way value of swiss francs will keep increasing.

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