Suppose that today the exchange rate between the U.S. dollar and the Chinese yuan is $1 = .12 yuan. If next week the exchange rate is $1 = .20 yuan, it is clear that: A)The yuan has depreciated relative to the dollar. B)Both currencies have depreciated. C)The dollar has depreciated relative to the yuan. D)Both currencies have appreciated

Suppose that today the exchange rate between the U.S. dollar and the Chinese yuan is $1 = .12 yuan. If next week the exchange rate is $1 = .20 yuan, it is clear that: A)The yuan has depreciated relative to the dollar. B)Both currencies have depreciated. C)The dollar has depreciated relative to the yuan. D)Both currencies have appreciated

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP3: Part 3: Exchange Rate Risk Management

Section: Chapter Questions

Problem 2Q

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Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot rate 2. ____________ Currency appreciation 3. ____________ Translation risk 4. ____________ Transaction risk 5. ____________ Exchange rate Column B a. The rate at which one currency can be traded for another currency. b. The possibility that future cash transactions will be affected by changing exchange rates. c. A month ago, 1 U.S. was worth 8.5 Mexican pesos. Today, 1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what? d. The degree to which a firms financial statements are exposed to exchange rate fluctuation. e. The exchange rate of one currency for another for immediate delivery (today).
(a) Suppose that the current exchange rate between the U.S. dollar ($) and the pound sterling (£) is Se/$=0.75 (i.e. $1 = £0.75). The basket of goods and services consumed by a typical household cost £200 in the UK and $300 in the U.S. A one-year U.S. Treasury bill yields an annual rate of retum of 3%, while a comparable UK Treasury bill yields 5%. The Federal Reserve is expected to keep the U.S. inflation rate at 2% over the coming year, while the Bank of England is expected to keep the UK inflation rate at 3% over the same period. (1) Is the pound overvalued or undervalued relative to the dollar by the standard of absolute purchasing power parity?
Suppose that exchange rate between the dollar and the peso is in equilibrium when inflation in the U.S. rises to 5.00%. At the same time, inflation in Mexico is 3.50%. If the inflation rate in the U.S. is denoted as I and the inflation rate in Mexico is If, then which of the following expressions represents the percent change in the peso under PPP? 1+If 1+In 1+In 1+1 - - 1 1 0.0145 -1.43% 1+/ +1 1+1 198.57% 1+If 1+1h +1 201.45% According to this formula, percentage change in the peso should be under PPP.
Suppose the annual rate of inflation in Taiwan is 6.66%, and the annual rate of inflation in Mexico is 5.99%. If the Mexican peso depreciates relative to the Taiwan dollar by 4% in real terms, then which of the following would be correct? a, Nominal exchange rate appreciation by 4.825%. b. Nominal exchange rate depreciation by 3.393%. c. Nominal exchange rate appreciation by 3.512%. d. Nominal exchange rate depreciation by 4.603%. e. There is no change in the nominal exchange rate.
25) The current exchange rate between the Japanese yen and the U.S. dollar is ¥90 per dollar. If the dollar is expected to depreciate by 7% relative to the yen, what is the new expected exchange rate?
Match each term in Column A with its related definition in Column B.Column A1. Spot rate2. Currency appreciation3. Translation risk4. Transaction risk5. Exchange rateColumn Ba. The rate at which one currency can be traded for another currency.b. The possibility that future cash transactions will be affected by changing exchange rates.c. A month ago, $1 U.S. was worth 8.5 Mexican pesos. Today, $1 is worth 9.0 Mexicanpesos. The U.S. dollar has undergone what?d. The degree to which a firm’s financial statements are exposed to exchange ratefluctuation.e. The exchange rate of one currency for another for immediate delivery (today).
Suppose the Japanese yen exchange rate is ¥105 = $1, and the British pound exchange rate is £1 = $1.34. A. What is the cross-rate in terms of yen per pound? B. Suppose the cross - rate is ¥136 = £1. Is there an arbitrage opportunity here? If there is, explain how to take advantage of the mispricing.
Last year, the exchange rate between the Korean won and the US dollar was KWN 1020 = USB 1. This year, the exchange rate is KWN 1150 =USB 1 . Has the Korean won appreciated or depreciated over the past year? Explain.
Assume that the Mexican peso currently trades at 11 pesos to the U.S. dollar. During the year U.S. inflation is expected to average 4%, while Mexican inflation is expected to average 5%. What is the current value of one peso in terms of U.S. dollars? Given the relative inflation rates, what will the exchange rates be 1 year from now? Which currency is expected to appreciate and which currency is expected to depreciate over the next year? The current value of one Mexican peso in terms of U.S. dollars, USS, is US$/MP. (Round to six decimal places.) Given the relative inflation rates, the exchange rate of one U.S. dollar in terms of Mexican pesos, MP, one year from now will be MP/US$. (Round to six decimal places.) Given the relative inflation rates, the exchange rate of one Mexican peso in terms of U.S. dollars, US$, one year from now will be US$ /MP. (Round to six decimal places.) ▼is expected to appreciate, while the is expected to depreciate over the next year. (Select from the…
Suppose the dollar interest rate and the pound sterling interest rate are the same, 6 percent per year. What is the relation between the current equilibrium dollar/pound exchange rate and its expected future level? O A. Expected dollar/pound exchange rate is higher than the current one. O B. Expected dollar/pound exchange rate is lower than the current one. C. Expected dollar/pound exchange rate is equal to the current one. O D. One cannot tell given the information above. Suppose the expected future exchange rate, $1.44 per pound, and the US interest rate remain constant, while Britain's interest rate rises to 8 percent per year. What is the new equilibrium dollar/pound exchange rate? New equilibrium exchange rate is $ per pound. (Enter your response to the nearest penny.)
Suppose the real exchange rate is constant – say, at the level required for net exports (or the current account) to equal zero. In this case, if foreign inflation is higher than domestic inflation, what must happen to the nominal exchange rate over time?
Which one of the following statements is correct about the exchange rates? A country with high inflation may see its currency to appreciate according to the asset market approach. Current interest rates are is=1% and iç-3.5% and they will stay constant for many years. We would expect the Euro to appreciate against dollar according to the uncovered interest rate parity. When the central bank of Australia raises interest rate to a level that is more than all traders expected, i.e. an unexpected rise in interest rate, the Australian dollar will depreciate. O The European Central Bank announces to increase interest rate by 0.1%. The market consensus was 0.2% increase before the announcement. Upon the news, we would see euro to appreciate. Price of currency futures(or forwards) will be slightly lower than the spot exchange rate at maturity.