Once capital markets are integrated, it is difficult for a country to maintain a fixed exchange rate. Why?a. The market forces may be stronger than the exchange rate intervention that the govemment can muster.O b. Portfolio managers will not invest in countries with fixed exchange rates.c. Both a and b are correct.O d. None of the above.

Capital markets are places where money is exchanged between people who supply capital and those who…

Answered: Once capital markets are integrated, it…

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

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Similar questions

Exchange rates can move up or down, and spot rates could move favourably as well as adversely. However, many companies prefer to hedge their currency risks by fixing an exchange rate now for a future transaction, even if this means that it will not be able to benefit from any favourable future movement in the exchange rate. Required Discuss the methods of hedging exposures to foreign exchange risk.
Why do companies with small profit margins have a smaller motivation to hedge against currency movements? Which industries (both specifically and the market form) are these to be most likely to be found it?
Explain why would a firm consider investing in a portfolio of foreign currencies instead of just a single foreign currency?
Leads are deliberate early payments of amounts due to be paid in foreign currency to overseassuppliers, or other foreign currency payments. Leads can avoid the risk that the sterling cost of these payments may rise if the amountsof the payments are quoted in foreign currency and the foreign currencyincreases in value. Under what circumstances can how an international company can use ‘leads and lags’ to protect itself againstforeign exchange risk?
What is the effect on a country’s economy of an artificially lowexchange rate? Of an artificially high exchange rate?
Assume that there are substantial capital flows among Country A, Country B and Country C. How will a decrease in interest rates in one country (Say A) exchange rate between country A and country B currencies ( if inflationary expectations remain unchanged). Can this affect the exchange rate between Country A and C too? How
3
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. 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:
Made sure you differentiate portfolio investments from FDI. Can we argue that a "A closed economy, however, is entirely self-sufficient", or if it is, at what costs? An open economy is one that engages in international trade of goods, services, and financial assets. An open economy participates in a variety of trade activities with foreign nations. A country's market can be expanded in a way that a closed economy can never do. It buys shares, debentures, bonds, and other types of securities from foreign nations and sells them to countries abroad. Normal people of an open economy are free to travel and work wherever they wish in that economy's domestic boundaries. A closed economy, however, is entirely self-sufficient, which implies that neither imports nor exports ever leave the nation. The objective of a closed economy is to provide all domestic consumers' needs from inside its boundaries. It does not import goods or services from other nations or export goods or services to them.…
Country differences, such as differences in the risk-free interest rate and differences in risk premiums across countries, can cause the cost of capital to vary across countries. The answer to this question in True. Group of answer choices True False
Question 1 (ILOs: A1, A2, B1, C1, C2, D1, D4) a. Some countries do not have well-established market for debt securities or equity securities. Why do you think this can limit the development of the country, business expansion, and growth in national income in these countries? b. When economic crises in countries are due to a weak economy, local interest rates tend to be very low. However, if the crisis is caused by an unusually high rate of inflation, the interest rate tends to be very high. Explain why?
If the Bank of England wanted to discourage investment spending and reduce aggregate demand, it could Select one: O a. buy securities on the open market O b. reduce the required reserve ratio O c. lower the discount rate O d. sell securities on the open market

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