Define Exchange rate and distinguish between direct and indirect quote. Johnson is a US citizen who recently got married to Bridget in New York. Johnson and Bridget plan to spend USD 1,000 each in Spain, New Zealand and Scotland as their honeymoon package. At a Bank in New York they were offered the following bid-ask quote USD/EUR 1.304-1.305, USD/NZD 0.67-0.69 and USD/GBP 1.90-1.95. If Johnson and Bridget accept these quote how many EUR, NZD and GBP do they have on departure? If they return after their honeymoon with EUR 300, NZD 1,000 and GBP 75 and the exchange rate remain unchanged, how many USD will they have? (i) Draw the rate of return diagram depicting the return on assets for the two separate countries Japan and Germany. Assume that (Currency ¥) is considered to be domestic and Germany (Currency €) a foreign country. Mention the equilibrium exchange rate between the two countries. Assume that the Japan Interest rate (i¥) and the Germany Interest rate (i€) both remain fixed as the expected rate of declines. Which of the following will be observed and why? The ROR€ line will shift to the right The ROR¥ line will shift to the right The ROR€ line will shift to the left The ROR¥ line will shift to the left
Define Exchange rate and distinguish between direct and indirect quote. Johnson is a US citizen who recently got married to Bridget in New York. Johnson and Bridget plan to spend USD 1,000 each in Spain, New Zealand and Scotland as their honeymoon package. At a Bank in New York they were offered the following bid-ask quote USD/EUR 1.304-1.305, USD/NZD 0.67-0.69 and USD/GBP 1.90-1.95. If Johnson and Bridget accept these quote how many EUR, NZD and GBP do they have on departure? If they return after their honeymoon with EUR 300, NZD 1,000 and GBP 75 and the exchange rate remain unchanged, how many USD will they have? (i) Draw the rate of return diagram depicting the return on assets for the two separate countries Japan and Germany. Assume that (Currency ¥) is considered to be domestic and Germany (Currency €) a foreign country. Mention the equilibrium exchange rate between the two countries. Assume that the Japan Interest rate (i¥) and the Germany Interest rate (i€) both remain fixed as the expected rate of declines. Which of the following will be observed and why? The ROR€ line will shift to the right The ROR¥ line will shift to the right The ROR€ line will shift to the left The ROR¥ line will shift to the left
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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QUESTION 2
- Define Exchange rate and distinguish between direct and indirect quote.
- Johnson is a US citizen who recently got married to Bridget in New York. Johnson and Bridget plan to spend USD 1,000 each in Spain, New Zealand and Scotland as their honeymoon package. At a Bank in New York they were offered the following bid-ask quote USD/EUR 1.304-1.305, USD/NZD 0.67-0.69 and USD/GBP 1.90-1.95.
- If Johnson and Bridget accept these quote how many EUR, NZD and GBP do they have on departure?
- If they return after their honeymoon with EUR 300, NZD 1,000 and GBP 75 and the exchange rate remain unchanged, how many USD will they have?
- (i) Draw the
rate of return diagram depicting thereturn on assets for the two separate countries Japan and Germany. Assume that (Currency ¥) is considered to be domestic and Germany (Currency €) a foreign country. Mention the equilibrium exchange rate between the two countries.
- Assume that the Japan Interest rate (i¥) and the Germany Interest rate (i€) both remain fixed as the expected rate of declines. Which of the following will be observed and why?
- The ROR€ line will shift to the right
- The ROR¥ line will shift to the right
- The ROR€ line will shift to the left
- The ROR¥ line will shift to the left
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