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.
Exchange Rates
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Advantages and Disadvantages of a High or Low Exchange Rate
What are the advantages and disadvantages of a high or low exchange rate for a currency? Is a strong U.S. dollar always good for the U.S. and global economies? Why or why not?
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.
Economics for Decision-Making
The marketing department has discovered that the price elasticity for your company's products in Brazil is expected to be much greater than in current markets served. Separately, your CFO sent you an e-mail earlier in the week stating that depending on how much business your company does abroad, the firm would expose 5 to 20 per
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 $0.00952. Today, the stock is selling at a price of 3,465 yen per sha
Interest Rates/ Axes/ Slopes
Suppose you hear a commentator on the radio state that when interest rates fall, the stock market [the Dow Jones average say] tends to rise. {NOTE -- the question DOES NOT ask you to justify the statement, only to describe the graph.} Draw a graph of such a relationship for yourself. a) What are the axes? b) Describe the s
How to calculate what to invest in
Suppose the CFO of a German corporation with surplus cash flow has 1million Euros to invest. Suppose that interest rates on 1-year CD deposits in US banks are 2%, while rates on 1 year CD deposits denominated in euros in German banks are currently 4.5%. Suppose further that the CFO expects that the (euro/$) exchange rate will in
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
Exchange Rate Regime and Monetary policy
Explain how does the choice of an exchange rate regime alter the conduct of monetary policy. In addition, please also explain when it tend to increase the power of the monetary authorities and when to decrease their power.
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
Economics Problem Set
1. 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?
How many dollars would the steel cost if payment were made at the time of shipping? How many dollars would the steel cost if payment were made at the end of 90 days?
A total of 805 tons of steel was shipped from Belgium to Virginia. The steel was priced at (euro) 940 per ton payable in 90 days. The exchange rate at the time of pricing was (euro) 1/$1.24. The 90- forward rate is (euro) 1/$1.28. How many dollars would the steel cost if payment were made at the time of shipping? How many dollar
Decreasing Geometric Gradient
Decreasing Geometric Gradient My book does not explain well the formula for a Decreasing Geometric Gradient. For example: if I have an initial cost of 4 million and a yearly decreasing cost of 25% per year through year 5, what would be the equivalent PV and Annual Cost?
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
Exchange Rate & Trade Deficit
Assume that foreigners are selling their investment holdings in Country A's financial markets (net capital outflow) and that Country A's trade deficit is widening. Assuming no other forces are affecting exchange rates, answer the following questions: 20. What happens to Country A's exchange rate and why? 21. Does the change
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
NPV Comparison between 2 Projects
The following cash flows are estimated for 2 mutually exclusive projects: (See attached chart). When is Project B more lucrative than Project A? (that is, over what range of costs of capital (k) does Project B have a higher NPV than Project A?) (Choose the best answer). (Hint: calculate the crossover rate - the cost of
The Small Open Economy Model, how the real exchange rate keeps the goods market in equilibrium. As described in intermediate macroeconomics by Mankiw.
This is a powerpoint presentation that demonstrates the SMALL OPEN ECONOMY MODEL as outlined in Mankiw's intermediate macroeconomics text. The slides build the model up one step at a time and explain how the real exchange rate keeps the goods market in equilibrium. (Y = C + I + G + NX(e))
effects of monetary and fiscal policy
Using the IS-LM model, describe the effects of monetary and fiscal policy on the level of economic activity. Outline the conditions under which these policies are (a) more effective, (b) less effective in changing the national income
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
US dollar vs Euro
Congratulations, you just won the Irish Lottery! You bought a ticket while you were on vacation in Ireland, and you just won a 1 million Euro jackpot after all taxes were taken out. 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%
Global economics
1. Select a U.S. multinational company. In terms of currency denomination, discuss 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. Using this information, what do you think would be the eff
Policy Alternatives for Trade Deficits
If you wish to lower the trade deficit, list four policy alternatives that can accomplish this goal. Why?
If you wish to lower the exchange rate, list two policies that can accomplish this goal. Why?
If you wish to lower the exchange rate, list two policies that can accomplish this goal. Why?
Balance of Payments Deficits
Assume that a nation faces a balance of payments deficit with high unemployment. What exchange-rate adjustment can be made to resolve these problems? What if the nation experiences a balance of payment surplus with inflation - what exchange-rate adjustment can be made to resolve this problem?