a country experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should ____, the outflow of its funds to purchase U.S. securities should ____, and there is ____ pressure on its currency's equilibrium value. * A) increase; decrease; downward. B) decrease; increase; upward. C) increase; decrease; upward. D) decrease; increase; downward.

a country experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should , the outflow of its funds to purchase U.S. securities should , and there is pressure on its currency's equilibrium value. * A) increase; decrease; downward. B) decrease; increase; upward. C) increase; decrease; upward. D) decrease; increase; downward.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterA6: Appendix 6: Government Intervention During The Asian Crisis

Section: Chapter Questions

Problem 6DQ

See similar textbooks

Similar questions

A country’s current account position moves from a surplus to a deficit. What will be the result? Pick a,b,c, or d A) an increase in real GDP B) a decrease in unemployment C) an increase in the exchange rate D) a decrease in the money supply
Explain, why appreciation of exchange rate (E) today results in the increase of expected return from foreign currency deposits (investments), assuming expected exchange rate does not change?
If a central bank decreases interest rates, then gradually: a. the country's gross domestic product is likely to decrease. b. foreign exchange rate is likely to appreciate. c. demand for exported goods and services is likely to increase. d. flows of investment funds into the country are likely to decrease.
Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of multinational companies. Consider the following statement: If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be multiplied when the lending country's currency appreciates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. The statement is invalid, because as the currency of the lending country appreciates, it becomes more expensive for the borrowing company to repay the initial loan. The statement is valid, because as the currency of the lending country appreciates, it becomes cheaper to repay the initial loan and thus increase savings. If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be by the…
Relative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of multinational companies. Consider the following statement: Countries with lower inflation rates will have lower interest rates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. O The statement is valid, because the nominal interest rate is the sum of the real interest rate plus inflation, so lower inflation rates would result in lower interest rates O The statement is invalid, because the nominal interest rate is independent of the inflation rate. The currency of a country with a higher inflation rate than the U.S. inflation rate will over time against the dollar.
Assume U.S. interest rates are generally above foreign interest rates. What does this suggest about the future strength or weakness of the dollar based on the IFE? Should U.S. investors invest in foreign securities if they believe in the IFE? Should foreign investors invest in U.S. securities if they believe in the IFE?
What are the changes in the following parameter / parameters in order to increase the value of the national currency and reduce the inflation rate? And what are the effects of these changes on currency risk, interest rate risk, price risk, country risk, GNP, current account deficit? Analyze and interpret.Moody's rating downgraded from 'Ba' to 'B', Foreign direct investment amount is low, Portfolio investments are high, Inflation rate: 15%Interest rate: 10%€ / $ = 0,2755
Assume that a country, due to speculation in the foreign exchange market, faces a sudden capital outflow (see figure below). If the country has high levels of foreign denominated debt and inadequate foreign reserves answer the following questions, [Questions 17,18,19] e-Exchange Rate Short Run NX NCO, NY, A shift in the NCD curve dae to a sudden capital outflow NCO before NCO her Long Ran NX NX, NCO Question 17: In a free float foreign exchange rate regime the country will experience immediately. a. an increase in NX due to currency devaluation at NX b. business bankruptcies due to currency devaluation e a devaluation of its currency from e to e d. a devaluation of its currency from esto es with no change in NX e all of the above
Explain why you agree or disagree with each of the following statements:i) “A nation’s currency will depreciate if its inflation rate is less than that of its trading partners.”ii) “A nation whose interest rate falls more rapidly than that of other nations can expect the exchange value of its currency to depreciate.”iii) “A nation that experiences higher growth rates in productivity than its trading partners can expect the exchange value of its currency to appreciate.”
If US dollars gets lower interest rates in the United States. How would this affect a fundamental forecast of foreign currencies? How would this affect the forward rate forecast of foreign currencies?
What is the effect on a country’s economy of an artificially lowexchange rate? Of an artificially high exchange rate?
Question Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners, we expect Answer a. political instability in the United States. b. a worsening of the U.S. balance of payments. c. an appreciation of U.S. currency. d. that a "dirty float" will emerge.