If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. When the asset expires at t+1, you get paid €_ _ (x.xx round to two decimal places). If dollar appreciates by 2 % against euro, that is, Et+1 € $(x.xx round to two decimal places), then you can buy back $ (x.xx round UP to two decimal places). Blank # 1 Blank # 2 Blank # 3

If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. When the asset expires at t+1, you get paid €_ _ (x.xx round to two decimal places). If dollar appreciates by 2 % against euro, that is, Et+1 € $(x.xx round to two decimal places), then you can buy back $ (x.xx round UP to two decimal places). Blank # 1 Blank # 2 Blank # 3

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

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If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. When the asset expires at t+1, you get paid € (x.xx round to two decimal places). If dollar appreciates by 2 % against euro, that is, Et+1 = €_______/$(x.xx round to two decimal places), then you can buy back $ (x.xx round UP to two decimal places). Question 10 options: Blank # 1 Blank # 2 Blank # 3
Accel Co. produces a standard tennis racket in the Netherlands and sells it online to consumers in the United States. This racket competes with a tennis racket produced by Malibu Co. in the United States, which is of similar quality and is priced at about $140. Accel has set the price of its tennis racket at 100 euros. Assuming that the euro's exchange rate (during the sales month in question) was $1.60, then the price of Accel's racket to U.S. consumers is $_________ (enter a whole number). Because U.S. consumers could buy a Malibu racket for only $140, Accel only sold about 1,000 rackets to U.S. consumers in that month. Since then, however, the euro's value has weakened; this month, the euro's exchange rate is only $1.20. U.S. consumers can now purchase the Accel tennis racket for $_________(enter a whole number), which is less than that charged for the U.S. Malibu racket. In this month, Accel sold 5,000 rackets. The U.S. demand for this tennis racket is price-elastic (sensitive to…
Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to be paid in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. a. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw receive after it exchanged yen for U.S. dollars? b. What is the difference (in dollars) between what DeGraw could have received had they asked for payment immediately (before the devaluation of the yen) instead of six months later?
Suppose that the current EUR/GBP exchange rate is £0.86 per euro. The current 6-month interest rates are: GBP 4%, EUR 6%. There are three 6-month forward contracts available, with the following exchange rates: Contract A B C EUR/GBP 0.86 0.85 0.90 You expect to receive an inheritance of €50,000 in six months, and you expect the EUR/GBP exchange rate to remain at £0.86 per euro until then. Would you enter in any of the available contracts today? If so and assuming your expectation about the future exchange rate is correct, how much profit/loss would you make?
Suppose that the current EUR/GBP exchange rate is £0.86 per euro. The current 6-month interest rates are: GBP 4%, EUR 6%. There are three 6-month forward contracts available, with the following exchange rates: Contract A B C EUR/GBP 0.86 0.85 0.90 You expect to receive an inheritance of €50,000 in six months, and you expect the EUR/GBP exchange rate to remain at £0.86 per euro until then. Would you enter in any of the available contracts today? If so and assuming your expectation about the future exchange rate is correct, how much profit/loss would you make Given the current EUR/GBP exchange rate and the available forward contracts, can you identify any arbitrage opportunities? If yes, provide two examples. In each case, calculate arbitrage profit and explain how this profit can be earned.
Suppose the U.S. dollar interest rate is 3%, while the interest rate in the United Kingdom is 6%. Your friend thinks he can convert his dollars, invest in the United Kingdom and convert his pounds back into dollars at the end of a year, allowing him to make a higher return than investing in dollars. Assuming uncovered interest parity (UIP) holds, explain why he is incorrect.
In mid-2006, a British pound sterling (the monetary unit in the United Kingdom) was worth 1.4 euros (the monetary unit in the European Union). If a U.S. dollar bought 0.55 pound sterling in 2006, what was the exchange rate between the U.S. dollar and the euro?
In France, one kilogram of macadamia nuts costs 10.5Euro and 10 Dollars in Canadian in Canada. According to the law of one price, the expected exchange rate between the Euro and the Canadian would be_____ 1.5Euro/$ 0.12Dollar/Euro 1.67 Dollar/Euro 0.67 Euro/Dollar
The UK pound is trading at 1.54 Canadian dollars per UK pound. There is purchasing power parity at this exchange rate .The interest rate in Canada is 2 percent a year and interest rate in The United Is 4% a year. a) Calculate the Canadian interest rate differential. b) What is the UK pound expected to be worth in terms of Canadian dollars one year from now. c) Which country more likely has a lower inflation rate ? How can you tell?
Turkey experienced hyperinflation in the late 1990s and early 2000s. The exchange rate for the Turkish lira was TRL650,000=$1 on January 1, 2001. In 2001, inflation in Turkey was 140%, while in the USA was only 2.5%. This led the Central Bank of Turkey to implement a mini-devaluation policy at the monthly rate of 7.5%. What was the official exchange rate on December 31, 2001? Was the Turkish lira properly valued? (Hint: Pay attention to the monthly devaluation process)
A Boeing plane 747 cost $50 million. Last year, the exchange rate between the US $ and the Canadian $ was 1:1. If the Canadian dollar has appreciated by 25%, how much would a Canadian pay to buy a Boeing plane 747? 12.5 million Canadian dollars 62.5 million Canadian dollars 85 million Canadian dollars 37.5 million Canadian dollars
In 1961, Charles de Gaulle decided he did not want the French franc to be considered as a second-rate currency, so he chopped two zeros off the value of the franc, which meant the exchange rate was approximately FF5/$ instead of FF500/$ (he also ordered that the $ key on IBM punchcard machines be replaced by the FF symbol). This had no immediate impact on any domestic or international transactions, but was supposed to convince the French people to put inflation behind them and keep their currency in line with the Dmark and the British pound. Whether or not this change in currency values made any difference, the relative inflation rate did slow down and the value of the FF did rise relative to the dollar over the next two decades. At the same time, the current account balance improved slightly. Based on these factors, explain what happened to the growth rate, show how the NX and NFI curves must have shifted, and describe the underlying economic developments.