Exam 14: Exchange Rates and the Foreign Exchange Market: an Asset Approach

Explain why (holding interest rates constant), a rise in the expected depreciation in a country's currency leads to depreciation of that currency today.

What are the three factors that affect the demand for foreign currency?

-Using the data in the table above, plot today's dollar/euro exchange rate against the expected dollar return on euro deposits.

Exxon Mobil wants to pay 160,000 to a German supplier. They get an exchange rate quotation from its own commercial bank and instructs it to debit their dollar account and pay 160,000 to the supplier's German account. If the exchange rate quoted is $1.2 per euro, how much is debited to Exxon Mobil's account?

Which one of the following statements is the MOST accurate?

Calculate the Expected Dollar Depreciation Rate against the euro and the expected dollar return on euro deposits if the expected exchange rate is $1.10 per euro.

The covered interest rate parity condition can be stated as follows: The interest rate on dollar deposits equals the interest rate on euro deposits ________ the forward ________ on euros against dollars.

Assume the U.S. interest rate is 10 percent, and the interest rate on euro deposits is 5 percent. For the following exchange rates, find the forward exchange rates.

Who are the major participants in the foreign exchange market?

How many dollars would it cost to buy an Edinburgh Woolen Mill sweater costing 50 British pounds if the exchange rate is 1.25 dollars per one British pound?

Which one of the following statements is the MOST accurate?

How many British pounds would it cost to buy a pair of American designer jeans costing $45 if the exchange rate is 2.00 dollars per British pound?

Calculate the interest rate in the United States, if interest parity condition holds, for the following 15 cases.

Based on the case study, "Exchange Rates, Auto Prices, and Currency Wars," explain why exchange rates are of critical importance to firms in the automobile industry, and how Japan has benefited from changes in the value of the Yen.

Which one of the following statements is the MOST accurate?

The action of arbitrage is

If the dollar interest rate is 4 percent, the euro interest rate is 6 percent, then

The largest trading of foreign exchange occurs in

Suppose that the one-year forward price of euros in terms of dollars is equal to $1.113 per euro. Further, assume that the spot exchange rate is $1.05 per euro, and the interest rate on dollar deposits is 10 percent and on euro it is 4 percent. Under these assumptions

-Determine for each, whether the interest parity condition holds or not, if = 1.10