(a) Indicate whether the statement is true, false, or uncertain and explain why. 1. If there is free capital mobility between the United States and Germany, then dollar deposits in New York and Frankfurt should have the same interest rate.
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- Assume you are managing a bank in a country that is holding $34 million in assets and $75 million in liabilities denominated in dollars. a. Determine the net exposure in dollars. b. Calculate the gain or loss for each currency below given last year’s spot rate and the current spot rate respectively for the U.S. $. Euro: 0.78717; 0.9048 Krone: 5.7538; 6.755 Columbian Peso: 2,535.253; 3,384.9 Mexican Peso: 16.9566; 19.3533 Dinar: .2689; .30466 Dong: 17,476.5; 23,201.52 c. Convert each of your answers in part b to current dollar equivalents.In August 2015 investor sentiment shifted against the Chinese yuan. Investors sold the yuan and bought dollars, as financial capital flowed out of China, seeking better rates of return in other countries. What actions did China take in response to this situation? O China used $1 trillion of its foreign exchange reserves to purchase the yuan in an attempt to prevent further devaluation and tightened capital controls on financial outflows. O China loosened capital controls to encourage forcign investment into the Chinese economy. O China sold the yuan to encourage further depreciation in an attempt to improve its trade deficit. China's monetary authority sold tie yuan in an attempt to orevent fürther devaluation and raised interest rates to stem the outflow of forcige capital.5) Because capital flows were an important element in the currency crises, it has been advocated that emerging markets countries avoid the financial instability by restricting capital mobility. Assess the extent to which you agree with this statement 6) If a country's par exchange rate is overvalued, what kind of intervention would that country's central bank be forced to undertake, and what kind of effect would it have on its international reserves? What must happen if this country's central bank decides not to intervene anymore?
- 9. How would you incorporate security considerations/costs into the transactions demand model? What would this imply for the demand for currency in a relatively insecure urban environment (a) compared with a relatively safe one, (b) when owner-identified smart cards become available? Do these factors affect the demand for demand deposits? How would the proportion of currency to demand deposits be affected in these cases? 10. Can the transactions demand model be used to explain why financial innovations in recent decades have reduced the transactions demand for M1? 11. Are transactions demand models useless, as Sprenkle (1969) argued? If they are, how would you explain the demand for M1 or just for demand deposits in the economy?4.People in other countries want to hold U.S. dollars as a unit of account. medium of exchange. standard of deferred payment. Store of valueIn answering the question, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Assume that yesterday the exchange rate between the euro and the Singaporean dollar was 1 euro = 0.58 Singaporean dollars. Assume that today the euro is trading at 1 euro = 0.60 Singaporean dollars. %3D a. How will the change in the exchange rate affect each of the following in Singapore in the short run? i. Aggregate demand. Explain. ii. The level of employment. Explain. b. Suppose that Singapore wants to return the exchange rate to 1 euro = 0.58 Singaporean dollars. i. Should the Singaporean central bank buy or sell euros in the foreign exchange market? ii. Instead of buying or selling euros, what domestic open-market operation can the…
- 33 The law of volatility states that similar goods or commodities in different countries should remain at the same price after conversion of currencies according to current exchange rates. True or False True False7 Assume that Vietnam is an open economy(i.e it trades with the rest of the world) but does not allow capital mobility Show the effects of: A, an contraction monetary policy under a fixed exchange rate regime B, an expansionary monetary policy under flexible exchnage rate regime (Use graph of the IS-LM to elaborate your answers)Paragraph H H Euros per Dollar Quantity of Dollars Styles 1 Title 1. Headline: Fed raises interest rates; attracts foreign investors. Supply of dollars (increase / decrease / stay the same) Demand for dollars (increase / decrease / stay the same) Euros per Dollar (increase / decrease / stay the same) Quantity of Dollars (increase / decrease / stay the same) Select- Editing Create PDF C and Share link Sh A Consider the foreign exchange market for dollars as discussed in Chapter 14, section 3.2 of your text and depicted above. How would the news headlines below affect the market for foreign exchange? Highlight or change the color of your response. 2 Display Settings
- 3. Discuss the five stages in the evolution of the international monetary system (IMS) and the main characteristics of each stage. Requirements: your answer to this question should be no less than 300 wordsExplain Crowding Out with a foreign sector and where the U.S. Treasury has access to foreign savings.Translation of Foreign Currency Transactions 1. Describe the functional currency concept and briefly describe how a foreign entity’s functional currency Is determined. 2. Describe what the current rate method and the temporal method and explain under what circumstance(s) should they used. 3. If the current rate method Is use, the gain or loss on translation Is Included under other comprehensive Income. Explain why this would make sense economically