Define Exchange rate and distinguish between direct and indirect quote.   Johnson is a US citizen who recently got married to Bridget in New York. Johnson and Bridget plan to spend USD 1,000 each in Spain, New Zealand and Scotland as their honeymoon package. At a Bank in New York they were offered the following bid-ask quote USD/EUR 1.304-1.305, USD/NZD 0.67-0.69 and USD/GBP 1.90-1.95.     If Johnson and Bridget accept these quote how many EUR, NZD and GBP do they have on departure?   If they return after their honeymoon with EUR 300, NZD 1,000 and GBP 75 and the exchange rate remain unchanged, how many USD will they have? (i) Draw the rate of return diagram depicting the return on assets for the two separate countries Japan and Germany. Assume that (Currency ¥) is considered to be domestic and Germany (Currency €) a foreign country. Mention the equilibrium exchange rate between the two countries.   Assume that the Japan Interest rate (i¥) and the Germany Interest rate (i€) both remain fixed as the expected rate of declines. Which of the following will be observed and why? The ROR€ line will shift to the right The ROR¥ line will shift to the right The ROR€ line will shift to the left The ROR¥ line will shift to the left

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question

QUESTION 2

  1. Define Exchange rate and distinguish between direct and indirect quote.

 

  1. Johnson is a US citizen who recently got married to Bridget in New York. Johnson and Bridget plan to spend USD 1,000 each in Spain, New Zealand and Scotland as their honeymoon package. At a Bank in New York they were offered the following bid-ask quote USD/EUR 1.304-1.305, USD/NZD 0.67-0.69 and USD/GBP 1.90-1.95.

 

 

  • If Johnson and Bridget accept these quote how many EUR, NZD and GBP do they have on departure?

 

  • If they return after their honeymoon with EUR 300, NZD 1,000 and GBP 75 and the exchange rate remain unchanged, how many USD will they have?
  1. (i) Draw the rate of return diagram depicting the return on assets for the two separate countries Japan and Germany. Assume that (Currency ¥) is considered to be domestic and Germany (Currency €) a foreign country. Mention the equilibrium exchange rate between the two countries.

 

  • Assume that the Japan Interest rate (i¥) and the Germany Interest rate (i€) both remain fixed as the expected rate of declines. Which of the following will be observed and why?
  • The ROR€ line will shift to the right
  • The ROR¥ line will shift to the right
  • The ROR€ line will shift to the left
  • The ROR¥ line will shift to the left
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Foreign Exchange Market
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education