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    Investor's Holding Period Return

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    1. If the demand for a country's exports falls at the same time that tariffs on imports are raised, will the country's currency appreciate or depreciate in the long run?

    2. An investor in England purchased a 91-day T-bill for $987.65. At that time, the exchange rate was $1.75 per pound. At maturity, the exchange rate was $1.83 per pound. What was the investor's holding period return in pounds?

    3. The current exchange rate is 0.93 euro per dollar, but you believe the dollar will decline to 0.85 euro per dollar. If a euro-denominated bond is yielding 2%, what will return will you expect in U.S. Dollars?

    4. A one-year CD in Europe is currently paying %5 and the exchange rate is currently 0.99 euros per dollar. If you believe the exchange rate will be 1.04 euros per dollar one year from now, what is the expected return in terms of dollars?

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    Solution Preview

    1. If the demand for a country's exports falls at the same time that tariffs on imports are raised, will the country's currency appreciate or depreciate in the long run?

    The fall in the exports from the country will reduce the supply of foreign currency keeping the demand same hence the domestic currency will depreciate, foreign currency will appreciate due to short supply.

    Raising the tariffs on imports will make the imports costly which will reduce the ...

    Solution Summary

    Various factors such as investor's holding period return are figured.

    $2.49

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