Chapter 1, Problem 3QA

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.

Why do we need a foreign exchange market?

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.

why is political stability is one of the factor of foreign exchange market

Answer the following: a. Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium. b. Explain why overshooting occurs. What can the Central Bank do to mitigate its effects?

Do international differences in financial leverage exist? Explain.

In theory, the arbitrage opportunity does not exist. However, with the new technologies and increased globalization, could arbitrage opportunity exist in some new ways?

The Fisher Effect is a familiar economic theory in the domestic market. Define the Fisher Effect and explain why you think it is also appropriately applied to international markets

The impossible trinity implies which of the following three together are not possible? Select one: а. domestic monetary autonomy, fixed exchange rates, perfect capital mobility b. flexible exchange rates, perfect capital mobility, domestic monetary autonomy С. fixed exchange rates, capital controls, domestic monetary autonomy d. no monetary policy autonomy, perfect capital mobility, fixed exchange rates