Assume the following: (1) the interest rate on six-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50, while the six-month forward price of the pound is $1.485. If the price of the six-month forward pound were to ,then U.S. investors would no longer earn an extra return by shifting funds to the United Kingdom. O rise to $1.52 O rise to $1.55 O fall to $1.40 O fall to $1.47 27

Assume the following: (1) the interest rate on six-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50, while the six-month forward price of the pound is $1.485. If the price of the six-month forward pound were to ,then U.S. investors would no longer earn an extra return by shifting funds to the United Kingdom. O rise to $1.52 O rise to $1.55 O fall to $1.40 O fall to $1.47 27

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter6: Managing In The Global Economy

Section: Chapter Questions

Problem 12E

See similar textbooks

Similar questions

Assume Switzerland has a one-year interest rate of 3% and that of Ghana is 16%. If the International Fisher Effect (IFE)holds, what would you forecast for the Swiss franc exchange rate with respect with the cedi be for a one-year period? Assume that the initial exchange rate is 5000cedis to a Swiss franc.
Suppose $2, 400 CAD could be used to purchase $2, 086.96 USD last year. Part (a): What was the nominal exchange rate last year? Be sure to quote your answer in the proper format (example: CAD = 1 USD). Roud your answer to the nearest cent (two decimal places: 0.50). Part (b): This year, if the exchange rate is $1.02 CA) = $1 USD, has the USD experienced a nominal appreciation or a nominal depreciation? Part (c): How will this change to the nominal exchange rate impact Canada's NX levels? Use a few sentences to explain how you arrived at this conclusion.
The following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO) measured in terms of the Mexican currency, the peso. The Market for Loanable Funds in MexicoDemandSupply012345678987654321REAL INTEREST RATE (Percent)LOANABLE FUNDS (Billions of pesos)Demand Supply Mexican Net Capital OutflowNCO-4-3-2-10123456987654321REAL INTEREST RATE (Percent)NET CAPITAL OUTFLOW (Billions of pesos)NCO Complete the first row of the table to reflect the state of the markets in Mexico. Real Interest Rate Net Capital Outflow (NCO) (Percent) (Billions of pesos) Initial state After capital flight Now, suppose that Mexico experiences a sudden bout of political turmoil, which causes world financial markets to become uneasy. Because people now view Mexico as unstable, they decide to pull some of their assets out of Mexico and put them into more…
In the last 4 years, the exchange rate Pound to Euro depreciated (decreased) to an average of 1.13 (from 1.30 before 2016). When citizens from the UK would go on holidays in a Euro zone country (e.g. Spain), would a lower exchange rate of 1.13(Sterling Pound to Euro) instead of an exchange rate of 1.30 (Pound to Euro) be of advantage or disadvantage for British tourists in Europe? Explain.
New Zealand dollar drops to lowest value against US dollar since 2020 (27/09/2022) The New Zealand dollar has dropped to its lowest value against its US equivalent since March 2020. The bad news for Kiwis is that it means it'll take longer for consumer price inflation to fall....a weak kiwi dollarmeans importing is more expensiveWhile we do expect inflation rates to slowly fall from here, the longer the New Zealand dollar remains low, the slower it will take for those inflation rates to fall, ASB senior economist Mark Smith said Six months ago the New Zealand dollar was US68.9c - now it's at US56.6c. a fall of 18 percent. Aotearoa's dollar is suffering because the US dollar is being pumped up by the US Federal Reserve lifting interest rates to tackle inflation. "Interest rates globally are going up, and when rates are going up, generally people tend to look to where their money will be safest, and at the moment it's certainly the US economy," saidSmithBut Finance Minister Grant…
New Zealand dollar drops to lowest value against US dollar since 2020 (27/09/2022) The New Zealand dollar has dropped to its lowest value against its US equivalent since March 2020. The bad news for Kiwis is that it means it'll take longer for consumer price inflation to fall....a weak kiwi dollarmeans importing is more expensiveWhile we do expect inflation rates to slowly fall from here, the longer the New Zealand dollar remains low, the slower it will take for those inflation rates to fall, ASB senior economist Mark Smith said Six months ago the New Zealand dollar was US68.9c - now it's at US56.6c. a fall of 18 percent. Aotearoa's dollar is suffering because the US dollar is being pumped up by the US Federal Reserve lifting interest rates to tackle inflation. "Interest rates globally are going up, and when rates are going up, generally people tend to look to where their money will be safest, and at the moment it's certainly the US economy," saidSmithBut Finance Minister Grant…
Assume that the total value of investment transactions between the United States and Mexico is minimal. Also, assume that the total dollar value of trade transactions between these two countries is very large. Now assume that Mexico's inflation has suddenly increased, and Mexican interest rates have suddenly increased. a) Please draw a graph to show how the equilibrium value of Mexican Pesos will change. b) What's more important for Mexican Pesos given the circumstances, change in interest rates, or change in inflation in Mexico?
3 In July 2021, a one-year Turkish bond had an interest rate of 18% and the exchange rate between the dollar and the Turkish lira was $1 = 8.68 lira. As of July 2022, the exchange rate has changed to $1 = 17.28 lira. Suppose an American invested $1000 in a one-year Turkish bond in July 2021. What rate of return would she have earned during the year (between July 2021 and July 2022)? Show all work
2) Exchange rates and interest rates are connected through the parity conditions. Let the New Zealand interest rate be 5% per annum, the US interest rate be 10% per annum, the spot exchange rate be 0.8USD/1 NZD, and the one year forward exchange rate to be 0.85USD/1 NZD. a) What is the return, in NZD, a New Zealand financial trader would get if they invested 1 NZD in New Zealand? b) What is the return, in NZD, an New Zealand financial trader would get if they invested 1 NZD in the US? [Hint: you'll have to exchange that NZD for USDI] c) As you should find, the values given mean the parity condition does not hold. Given the interest rates are fixed, what will happen to the value of the spot exchange rate now? Think about this in terms of demand and supply for the NZD in the FOREX market, and you may draw out a diagram if you wish. d) Now repeat c) for the change in value of the forward exchange rate.
Urgently need. Y = C + I + G + NX Y=$6000 G=$1000 T=$1150 C=$200+0.75(Y−T) I=1100−50r NX=913−913ε r=r*=7r=r*=7 b. Suppose now that G rises to $1400. Solve for private saving, public saving, national saving, investment, the trade balance, and the equilibrium exchange rate.
You work for the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce. Your supervisor gives you the following U.S. International Transactions Accounts for the Year 20XX (figures are in billions of dollars) and wants it reported in a coherent fashion in accordance with accepted conventions: Investment income payments $24; Export of goods $456; Balance of services $57; U.S purchases of foreign assets were $147.; Imports of goods $589; Change in Official Reserves $15; Investment income receipts $28; Foreign purchases of U.S. assets were $230; Net unliteral transfers were ($32). ($32) means -$32. a)- He wants you to compute the balances of trade, current account, capital account and statistical discrepancy. b)- He also wants you to find out (based on your calculation) if the U.S. is a net debtor or a net creditor. Explain
Suppose that the Japanese yen rises against the U.S. dollar-that is, it will take more dollars to buy a given amount of Japanese yen. Explain why this increase simultaneously increases the real price of Japanese cars for U.S. consumers and decreases the real price of U.S. automobiles for Japanese consumers. dollars, and the purchase of a U.S. As the value of the yen grows relative to the dollar, the purchase of a Japanese automobile priced in yen requires automobile priced in dollars requires yen. more fewer