International Finance
Question 1
i.
The expected spot rate was decreased and depreciation of 4.05% percent.
ii. The higher the inflation in United States will lead to a higher price of U.S. products. Therefore, U.S. consumers will buy more Canadian goods. The demand for Canadian dollars will appreciate and increase in U.S. because U.S. inflation rate become high. The supply of Canadian dollars for sale should decrease, because the values of Canadian dollars increase and nobody want to sell it. The equilibrium value of Canadian dollars will appreciation because the demand is increases. The reason of demand increase is the rate of U.S. inflation becomes high relative to inflation of Canadian.
iii. The relative falling of interest rate of U.S and British will lead the U.S. demand for British pounds to increases. As consumers will tend to buy more British pounds. The supply of British Pounds for sale will decrease as people are not willing to sell it. The equilibrium value for British Pounds will increase just as the demand increases. The reason of demand increases is because of U.S. and British interest rate, both of these interest rate has draws the attention of people. iv. Assuming that, there nothing effecting on the interest rates of U.S., the demand for dollars will still increases as the income level of Canada is lower than U.S. The supply of Canadian dollars for sale, it’s not affected as there are no inflation and interest rate involved in the process. The equilibrium value for Canadian dollars will increase since the demand is increasing because both equilibrium value and demand are tightly linked together.
v. The demand for yen should not be affected because more imports by the Japanese company will only give profit to the companies who supply to the Japanese company and it will not make the people of U.S. to buy more yen out
i.
The expected spot rate was decreased and depreciation of 4.05% percent.
ii. The higher the inflation in United States will lead to a higher price of U.S. products. Therefore, U.S. consumers will buy more Canadian goods. The demand for Canadian dollars will appreciate and increase in U.S. because U.S. inflation rate become high. The supply of Canadian dollars for sale should decrease, because the values of Canadian dollars increase and nobody want to sell it. The equilibrium value of Canadian dollars will appreciation because the demand is increases. The reason of demand increase is the rate of U.S. inflation becomes high relative to inflation of Canadian.
iii. The relative falling of interest rate of U.S and British will lead the U.S. demand for British pounds to increases. As consumers will tend to buy more British pounds. The supply of British Pounds for sale will decrease as people are not willing to sell it. The equilibrium value for British Pounds will increase just as the demand increases. The reason of demand increases is because of U.S. and British interest rate, both of these interest rate has draws the attention of people. iv. Assuming that, there nothing effecting on the interest rates of U.S., the demand for dollars will still increases as the income level of Canada is lower than U.S. The supply of Canadian dollars for sale, it’s not affected as there are no inflation and interest rate involved in the process. The equilibrium value for Canadian dollars will increase since the demand is increasing because both equilibrium value and demand are tightly linked together.
v. The demand for yen should not be affected because more imports by the Japanese company will only give profit to the companies who supply to the Japanese company and it will not make the people of U.S. to buy more yen out