The CFO can forecast exchange rates by using either of two approaches‚ fundamental forecasting or technical forecasting. Fundamental forecasting uses trends in economic variables to predict future rates. The data can be plugged into an econometric model or evaluated on a more subjective basis. Technical forecasting uses past trends in exchange rates themselves to spot future trends in rates. Technical forecasters‚ or chartists‚ assume that if current exchange rates reflect all facts in the market
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Floating Exchange Rate Exchange rates between currencies have been highly unstable since the collapse of the Bretton Woods system of fixed exchange rates‚ which lasted from 1946 to 1973. Under the "floating" exchange rates‚ since 1973‚ exchange rates are determined by people buying and selling currencies in the foreign-exchange markets . The instability of floating rates has surprised and disappointed many economists and businessmen‚ who had not expected them to create so much uncertainty.
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An exchange-rate regime is the way an authority manages its currency in relation to other currencies and the foreign exchange market. It is closely related to monetary policy and the two are generally dependent on many of the same factors. The basic types are 1. Floating exchange rate‚ where the market dictates movements in the exchange rate Floating rates are the most common exchange rate regime today. For example‚ the dollar‚ euro‚ yen‚ and British pound all are floating currencies. However
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on the AACSB letter indicators (F‚ M‚ etc.) on the subject lines. Multiple Choice: True/False (5-2) Compounding 1. F J Answer: aEASY Starting to invest early for retirement increases the benefits of compound interest. a. True b. False (5-2) Compounding 2. F J Answer: bEASY Starting to invest early for retirement reduces the benefits of compound interest. a. True b. False (5-2) Compounding 3. F J Answer: aEASY A time line is meaningful even if all cash flows
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Political risk be excluded from multinational corporate financial analyses. d. Statements a and b are correct. e. All of the statements above are correct. Currency depreciation Answer: a Diff: E . If the inflation rate in the United States is greater than the inflation rate in Sweden‚ other things held constant‚ the Swedish currency will a. Appreciate against the U.S. dollar. b. Depreciate against the U.S. dollar. c. Remain unchanged against the U.S. dollar. d. Appreciate against other
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Solution to Problem Set 1 1. You are considering various retirement plans. Your goal is to have a lump sum of $3‚000‚000 available (‘in the bank’) when you retire at age 67. The various plans‚ with their payment schedules‚ are listed below. In each case‚ calculate the payment(s) that must be made into the plan to ensure that you have the $3‚000‚000 available. For each plan‚ you may assume that your opportunity cost of funds is 6% per year; for each plan‚ you may assume that the phrase “at
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Raising the Interest Rate Principles of Finance Introduction After years of declining interest rates‚ we are facing a dilemma; should the Federal government increase rates to contain inflation‚ or keep rates low to boost the US economy? Increases in consumption of oil‚ metals‚ materials‚ and food‚ both foreign and domestic‚ are increasing demand. Prices are rising on a global scale as demand increases. Additionally‚ the US is experiencing rising costs for healthcare and education. Yet‚ the
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Exchange rate policy The exchange rate of an economy affects aggregate demand through its effect on export and import prices‚ and policy makers may exploit this connection. Deliberately altering exchange rates to influence the macro-economic environment may be regarded as a type of monetary policy. Changes in exchanges rates initially work there way into an economy via their effect on prices. For example‚ if £1 exchanges for $1.50 on the foreign exchange market‚ a UK product selling for £10 in
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China ’s Exchange Rate Peg concerning Trade Policy with U.S. Overview of the Problem The U.S. and China trade imbalance continue to be on the rise. U.S. manufacturing firms and workers voiced complaints over the competitive challenges posed by cheap Chinese imports. China ’s trade policy of pegging its currency‚ the yuan‚ to the U.S. dollar has enabled an unfair trade advantage according to the U.S. Some have gone as far as calling it "currency manipulation." The outcome has been loss of
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Lecture Notes on MONEY‚ BANKING‚ AND FINANCIAL MARKETS Peter N. Ireland Department of Economics Boston College irelandp@bc.edu http://www2.bc.edu/~irelandp/ec261.html Chapter 5: The Behavior of Interest Rates 1. Loanable Funds Framework Demand Curve Supply Curve Market Equilibrium 2. Changes in Equilibrium Interest Rates Shifts in Demand Shifts in Supply Example: Interest Rates and the Business Cycle By studying Mishkin’s Chapter 4‚ we learned how interest rates could be measured for a
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