Exchange Rate
Homework
Chapter 3
Questions
1. Utah Bank’s bid price for Canadian dollars is $.7938 and its ask price is $.81. What is the bid/ask percentage spread?
2. Of what use is a forward contract to an MNC?
3. If a euro is worth $.80, what is the value of a dollar in euros?
4. What is the function of the Eurocurrency market?
5. Why do interest rates vary among countries? Why are interest rates similar for those European countries that use the euro as their currency?
Small Business Dilemma
Use of the Foreign Exchange Markets by the Sports Exports Company (see textbook, 8th edition)
Chapter 4
Questions
1. Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?
2. Assume that the U.S. income level rises at a much higher degree than does the Canadian income level. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?
3. What is the expected relationship between the relative real interest rates of two countries and the exchange rate of their currencies?
4. Explain why a public forecast by a respected economist about future interest rates could affect the value of the dollar today. Why do some forecasts by well-respected economists have no impact on today’s value of the dollar?
5. Every month, the U.S. trade deficit figures are announced. Foreign exchange traders often react to this announcement and even attempt to forecast the figures before they are announced. a. Why do you think the trade deficit announcement sometimes has such an impact on foreign exchange trading? b. In some periods, foreign exchange traders do not respond to a trade deficit announcement, even when the announced deficit is very large. Offer
Chapter 3
Questions
1. Utah Bank’s bid price for Canadian dollars is $.7938 and its ask price is $.81. What is the bid/ask percentage spread?
2. Of what use is a forward contract to an MNC?
3. If a euro is worth $.80, what is the value of a dollar in euros?
4. What is the function of the Eurocurrency market?
5. Why do interest rates vary among countries? Why are interest rates similar for those European countries that use the euro as their currency?
Small Business Dilemma
Use of the Foreign Exchange Markets by the Sports Exports Company (see textbook, 8th edition)
Chapter 4
Questions
1. Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?
2. Assume that the U.S. income level rises at a much higher degree than does the Canadian income level. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?
3. What is the expected relationship between the relative real interest rates of two countries and the exchange rate of their currencies?
4. Explain why a public forecast by a respected economist about future interest rates could affect the value of the dollar today. Why do some forecasts by well-respected economists have no impact on today’s value of the dollar?
5. Every month, the U.S. trade deficit figures are announced. Foreign exchange traders often react to this announcement and even attempt to forecast the figures before they are announced. a. Why do you think the trade deficit announcement sometimes has such an impact on foreign exchange trading? b. In some periods, foreign exchange traders do not respond to a trade deficit announcement, even when the announced deficit is very large. Offer