What factors cause changes in exchange rates? How do these factors cause a currency to appreciate or depreciate? What impact would a depreciating currency have on the current account balance?© BrainMass Inc. brainmass.com October 25, 2018, 2:15 am ad1c9bdddf
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First, the exchange rates of a currency relative to another currency depend on several factors. These factors include the interest rate of the country relative to another, expected future ...
A brief overview of causes for changes in exchange rates is presented.
Exchange Rates: Compare 3 currency exchange rates from the standpoint of a U.S. company.
Shown below are exchange rates for several currencies. The rates are shown as indirect rates from the standpoint of a U.S. company.
Euro Swiss Franc Mexican Peso
Spot rate 0.90 1.05 11.00
30-day forward rate 0.92 1.20 10.95
60-day forward rate 0.93 1.25 10.70
a. Is the euro appreciating or depreciating against the U.S. dollar? Why?
b. Is the Swiss franc appreciating or depreciating against the U.S. dollar? Why?
c. Is the Mexican peso appreciating or depreciating against the U.S. dollar? Why?
d. Using cross-rates, how many francs will the euro buy, how many pesos will the franc buy, and how many euro will the peso buy?
e. A U.S. company purchases goods from several foreign companies with payment due in euros, francs, and pesos. Would the company be better off paying now or waiting for 60 days? Why?