Purchase Solution

Not what you're looking for?

If the current exchange rate is US\$1 equals 1.25 Euros, how much did you win in US dollars?

Suppose that the interest rate in Irish banks is 5% for a one year CD. In the USA, the rate is 2% for a one year CD. If you left your winnings in Ireland, how many Euros would you have in a year? If you had taken your winnings back to the USA, how many dollars would you have?

Suppose when you cashed in your CD in Ireland a year from now, the exchange rate had changed from US\$1 to 1.25 Euro, to US\$1 to 1.30 Euro. How much would your Irish bank account be worth in US\$ at that point? Did you do better off leaving your winnings in Ireland or bringing them home to the USA?

Explain how banks and individuals can use "covered interest arbitrage" to protect themselves when they make international financial investments.

Using the theory of purchasing power parity, explain how inflation impacts exchange rates. Based on the theory of purchasing power parity, what can we infer about the difference in inflation between Ireland and the USA during the year your lottery winnings were invested? Show all calculations

Solution Summary

Using the theory of purchasing power parity, explain how inflation impacts exchange rates. Based on the theory of purchasing power parity, what can we infer about the difference in inflation between Ireland and the USA during the year your lottery winnings were invested? Show all calculations.

Solution provided by:
Education
• BSc, Dokuz Eylul University
• MBA, Texas A&M University-Kingsville
Recent Feedback
• "Thanks"
• "Thanks"
• "This is a great help...Thank you"
• "Oh my gosh u are awesome... A++"

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.