Fisher effect and Interest Rate Parity theories. If these theories exist, explain MNCs' justification to invest excess cash in foreign country. Present a situation in which investment in the foreign money market would provide a higher rate of return than the one offered at the home market.
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- Explain the International Fisher effect and Interest Rate Parity. If these parity exists, explain the justification for MNCs to invest excess cash in foreign country. Provide examples in which situation the excess cash investment would gain higher rate of return that the one offered at the home market.Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment. Would exchange rate changes always increase the risk of foreign investment? Discuss the condition under which exchange rate changes may actually reduce the risk of foreign investment.What do you know about arbitrage opportunity? Discuss with examples. Also, present a scenario of any type of international arbitrage if possible. If so, how would it be executed and how would market forces be affected? Does arbitrage opportunity destabilize foreign exchange markets?
- Explain how exchange rate fluctuations affect the return from a foreign market measured in dollar terms. Discuss the empirical evidence on the effect of exchange rate uncertainty on the risk of foreign investment.Does Arbitrage destabilize foreign exchange markets? Support your logic about that statementDoes arbitrage destabilize foreign exchange markets? If yes, which argument do yousupport? offer your own opinion on this issue.
- Which of the following is/are TRUE with respect to spot market liquidity? I. The market liquidity improves if more buyers and sellers willing to participate in the currency trading. II. The spot markets for heavily traded currencies such as the Euro and Pound are very liquid. III. A currency's liquidity affects the ease with which an MNC can obtain or sell that currency. IV. If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate. A. I, II, III B. I, III, IV C. II, III, IV D. I, IISuppose that a country decided to increase policy interest rates . a)Using the asset approach show how this policy is expected to influence the value of this country's currency. Show your answer on a graph as well.For the statements below indicate if it is true or false. If the statement is false, rewrite so that it is a true statement. Use the space available to answer your question. 1. Foreign exchange markets are markets in which people of one country exchange goods with people from another country. TRUE/False: 2. When the actual foreign exchange rate for the dollar is greater than the equilibrium rate, the dollar is undervalued, meaning that it will buy less in international trade than it will buy at home. TRUE/False : 3. For any given interest rate, the shorter the time period before the receipt a dollar, the lower is its present value. TRUE/False :
- d. Discuss whether Galina Works should avoid exchange rate risk by invoicing foreign customers in dollars. e. Explain to Galina Works how, in respect of foreign sales, discounting and factoring can be used as hedging tools to manage foreign currency risk.Why might a foreign government’s policies be closely monitored by investors in other countries, even if the investors plan no investments in that country? Explain how monetary policy in one country can affect interest rates in other countries.Which of the following statements is CORRECT? Forward rate should provide more accurate forecasts for currencies in low-inflation countries than the spot rate. The technical forecasting is based on a wide range of data regarded as fundamental economic variables that determine exchange rates. In contrast, the fundamental forecasting focuses on a much smaller set of data, typically the historical exchange rates. O Technical forecasting model can reliably forecast long-run exchange rates. The spot rate is a useful Market-Based Forecast if the expected percentage change in the currency is zero over the forecast period. There are three main types of methods to forecast exchange rates: technical forecasting. fundamental forecasting, and market-based forecasting. These three methods always make the same directional prediction regarding whether a currency is appreciating or