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Economics

1.If the Euro costs $1,5841 Canadian, what is your cost for a E200pair of showes?

2.If the canadian dollar depreciates by 10 percent, how much more do the shoes cost?

3.If Bombardier sells its aircraft in U.S. dollars, 70 percent of its cost are production are U.S.dollar-denominated, by 30 percent of its costs are Canadian-dollar-denominated does it benefit or lose from unexpected Canadian dollar appreciation? How can it "hedge" against losses from unexpected changes in the value of Canadian dollar?

4.How has the recent strength of the Canadian dollar affected the profitability of the Ottawa Senators?

5.IF you bought NOrtel stock at $2.50 a share, what was your rate of return if the share price rose to $3.00 in 30 days? Would you alter if you also received dividend payments? What if the same scenario occurred with respect to the stock of an American Firm?

6. Why is there an inverse relationship between the current dollar/euro exchange rate and the expected dollar return on euro deposits?

7. How do you draw equilibrium in the foreign exchange market?

8.When is the forward exchange rate equal to the expected future spot exchange rate? Why does this imply for exchange rate movement?

9.Why do higher interest relates for a particular currency deposit cause that currency to appreciate? How does this explain the current strength of the canadian dollar relative to the U.S. dollar?

10. Why do expected future exchange rate changes cause the current exchange rate to change in the same direction?

11. Does interest parity still hold if any profits from exchange rate ?

12. What is exchange rate pass-through?

13.What are the differences between permanent and temporary government policies in the short-run and long run?

14.What are the differences between Monetary and fiscal policies in the short run and long run? Which of the two is more effective?

15.Why might a government use a temporary policy in the short-run, even when the economy is at full employment? Does this fit with your knowledge of the policies that the Liberal Government implemented prior to the canadian federal elections in the fall of 2001?

16.Why would a government use a temporary policy to address a short run shock in the economy?

17. When would a government use permanent fiscal expansion or monetary expansion effectively? How do price adjustment impact on the success of such or do they?

Solution Preview

1.If the Euro costs $1,5841 Canadian, what is your cost for a E200pair of showes?
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<br>Answer to 1: if 1E=$1.5841, then 200E=$361.82
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<br>2.If the canadian dollar depreciates by 10 percent, how much more do the shoes cost?
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<br>Answer to 2: $361.82*1.1=$348.5
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<br>3.If Bombardier sells its aircraft in U.S. dollars, 70 percent of its cost are produciton are U.S.dollar-denominated, by 30 percent of its costs are Canadian-dollar-denominated does it benefit or lose from unexpected Canadian dollar appreciation? How can it "hedge" against losses from unexpected changes in the value of Canadian dollar?
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<br>Answer to 3: It will lose from Canadian dollar appreciation, since they will pay more in terms of US dollars. They can sell 30% of their products in Canadian dollars to "hedge".
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<br>4.HOw has the recent strength of the Canadian dollar affected the profitablility of the Ottawa Senators?
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<br>Answer to 4: It benefited Ottawa Senators.
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<br>5.IF you bought NOrtel stock at $2.50 a share, what was your rate of return if the share price rose to $3.00 in 30 days? WOuld you alter if you also received dividend payments? What if the same scenario occurred with respect to the stock of an American Firm?
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<br>Answer to 5: Annual rate of return: (3-2.5)/2.5*12=240%. If you also received dividend payments, then the rate of ...

$2.19