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Exchange Rates

Economics Problems - Multiple Choice

33. In the rate process, the determination of the __________________ has historically been somewhat neglected in relation to the other steps in the process. a. Rate structure. b. Rate level. c. Allowable operating costs. d. Rate base. e. Allowable rate of return. 43. An illustration of a non-credible commitment is the

Economic Review Questions

Please help provide the correct term for the following statements. Only the term is needed. 1. The price at which an investor will sell a security. The price a buyer is willing to pay for a security is the bid. The difference between the ask and bid price is the spread. 2. A market in which prices are in an upw

Multiple choice economics questions

Aggregate demand slopes downward because a. there are always substitute goods for anything. b. of diminishing marginal utility. c. of the effect of higher prices on consumers' wealth. d. foreign goods can substitute for domestic goods.


Suppose the spot exchange rate is $2.00 per euro and that the annual interest rate on one-year government bond is 10 percent in the U.S. and 8 percent in Germany. a. If you expect the spot price of the euro to be $2.00 in one year, where will you invest? Explain b. In order for investors to be

Exchange Rates

A) What is the current exchange rate for changing dollars into 1,000 units of pounds, Canadian dollars, euros, yen, Mexican pesos, and Swedish kronas? See attached file for full problem description.

Economic Indexing

The Big Mac Price Index computed by the Economist has consistently found the U.S. dollar to be undervalued against some other major currencies, which seems to call for a rejection of the purchasing power parity theory. Explain why the index may not be a valid test of the theory.

Multinational Finance Problems

1) One year ago, a U.S. investor converted dollars to yen and purchased 100 shares of stock in a Japanese company at a price of 3,150 yen per share. The stocks total purchase cost was 315,000 yen. At the time of purchase, in the currency market 1 yen equaled $0.00952. Today, the stock is selling at a price of 3,465 yen per sha

Interest Rates/ Axes/ Slopes

Suppose you hear a commentator on the radio state that when interest rates fall, the stock market [the Dow Jones average say] tends to rise. {NOTE -- the question DOES NOT ask you to justify the statement, only to describe the graph.} Draw a graph of such a relationship for yourself. a) What are the axes? b) Describe the s

Currency Swaps and Interest Rate Derivatives

1. At present, LIBOR3 is 7.93% and LIBOR6 is 8.11%. What is the forward rate for a LIBOR3 deposit to be placed in three months? 2. Company A, a low-rated firm, desires a fixed-rate, long-term loan. A currently has access to floating interest rate funds at a margin of 1.5% over LIBOR. Its direct borrowing cost is 13% in the

Money and Banking: Required Reserve Ration

Dubya decides to deposit $5,000 of his cash holdings in Wachovia. The required reserve ratio is set at 10 percent or .10 and the bank does not hold any excess reserves. a. What is the immediate effect on his deposit on the banking system? Explain. b. What is the maximum amount of money that Wachovia could loan out? Expl

Macroeconomics Questions

1) Over the last two decades, according to the United States balance of payment, A)the current accounts and the capital account balance tend to move in the same direction.(B) the current account and the capital accounts balance tends to move in opposite direction.(C)there is no clear relationship between the current accounts ba

Economics - Bank of Canada decides to expand the money supply.

Suppose that the Bank of Canada decides to expand the money supply. * Why would it be counterproductive for the Bank of Canada to fix the value of the exchange rate? * What is the effect of this policy on the interest rate in the long run? How do you know? * What characteristic of the economy makes the short-run effect monet

Maximizing profit given different market conditions.

(See attached file for full problem description) --- Problem 7: In your job overseeing pricing and marketing of software for a major U.S. manufacturer of software (Macrotuff), your staff develops the following data on the willingness to pay for two of your products (Doors and Traveler) for three groups of potential cust

Forward exchange rate, Discount/premium, Depreciation/ Appreciation

1. Smith is a currency trader and is reviewing forward foreign exchange rates. His investors have made several statements regarding foreign exchange rates. Which of the following statements is correct and can help Smith predict future spot exchange rates? According to the foreign exchange expectation relation forward: A) di

Purchasing power parity, Interest rate parity

1. Smith knows that if the forward rate is lower than what interest rate parity indicates, the appropriate strategy would be to borrow: A) pounds, convert to dollars at the spot rate, and lend the dollars. B) pounds, convert to dollars at the forward rate, and lend the dollars. C) dollars, convert to pounds at the

Forward premium/discount, Exchange rate movements, Parity

1) Doug Wyatt is a currency trader for Global Currency Exchange Inc. Wyatt has compiled the following information concerning the U.S. dollar ($) / Australian dollar (AUD) exchange rate. - Spot bid rate: $0.745 - Spot ask rate: $0.749 - 3-month forward bid rate: $0.752 - 3-month forward ask rate: $0.754 Which of the f

Effects of monetary policy effect

In order to make better decisions in life, how does monetary policy effect the interest rates on debt (like credit cards), investments such as stocks and mutual funds, and mortgage rates.

Comparison Methods

The Biltmore Garage has lights in places that are difficult to reach. Management estimates that it costs about $2 to change a bulb. Standard 100-watt bulbs with an expected life of 1000 hours are now used. Standard bulbs cost $1. A long-life bulb that requres 90 watts for the same effective level of light is available. Long-life

Hypothetical Production Costs

--- Refer to attached graph. 1. Assuming that Toyota obtains all inputs from Japanese suppliers and that the yen/dollar exchange rate is 200 yen per dollar. What is the dollar-equivalent cost of a Toyota automobile? Show your work. 2. Assume that Toyota Inc. obtains all of its automobile inputs from Japanese suppliers

Floating exchange rate effects

Assume that economic growth is slower in the United States than in its trading partners. Given a system of floating exchange rates, will the impact of this growth differential be for the United States with respect to exports and the value of the dollar? Explain.

How the firm prices its revenues and costs

Need road map to start. Select a U.S. multinational company. In terms of currency denomination, how the firm prices its revenues and costs. For MNE's with multiple foreign operations, consider any one of those operations and the contribution it is making to the parent firm's profits. Show all applicable work. Using this informat

International Finance

Exchange Rate Relationships. Define each of the following theories in a sentence or simple equation. a. Interest rate parity theory. b. Expectations theory of forward rates. c. Law of one price. d. International Fisher effect Heading Exchange Rate Risk. An importer in

Macroeconomics help

Taking into account the following: C= Ca = 0.75 (Y-T) Ca = 1000- 20r Ip = 600 - 20r T = 400 + 0.15Y M = 500 + 100 e + 0.0375Y G = 1,000 X = 400 - 100e + 0.01Yf (M/P)d = 0.4Y - 40r Ms/P = 2,000 E = 2 Yf = 100,000 X = exports M = imports Please show all your work and answer the following: a

International Interest Rates

The issue of differences in international interest rates is quite relevant and interesting as it determines a large part of capital flows. Why would we expect the difference in the 1-year interest rate on the dollar vs the 1-year interest rate on, the Euro or any other freely convertible currency, to match exactly the anticip

Trade Deficit with Japan

Do we know why there was a trade deficit in June 2005 between the USA and Japan? Was there a particular reason for this?

Monetary Policy

I understand that monetary policy is an important tool of the federal reserve to regulate the interest rates and money supply which impacts the currency movement. It is also my understanding that the economy can adjust itself. Is it the fact that the economic adjustment takes too long? There must be a reason why the US does not

Basic Macroeconomics question

Consider a group of open economies; assume perfect capital mobility; (a) Assume there is a Leader country. All other countries (referred to as the Follower countries) fix their exchange rates vis-à -vis the Leader country. Discuss the effectiveness of monetary policy in the Follower countries. (b) If the Leader country r

Foreign Exchange Rates and portfolio adjustments

This question regards international finance specifically the asset market model and exchange rates. Assume the spot exchange rate between dollars and yen is e=$1/100yen. The interest rate on a 180 day dollar denominated assets is i($)=1% and the interest rate on comparable 180 day yen denominated assets is also i(yen)= 1%. T