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- Discuss the three (3) purposes of the international capital market
- Outline the four (4) functions of the foreign exchange market
- Differentiate between Spot Rates and forward rates
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- For each of the following transactions, show the two entries in the US balance of payments. For each entry, indicate whether it appears in CA (the current account) or KFA (the capital and financial account). Show if each entry is a debit (-) or a credit (+). For entries in KFA, choose the appropriate explanation from the following four possibilities: i) increase in US-owned assets abroad (increase in US claims on foreigners), ii) decrease in US-owned assets abroad (decrease in US claims on foreigners), iii) increase in foreign-owned assets in the US (increase in foreign claims on the US), iv) decrease in foreign-owned assets in the US (decrease in foreign claims on the US). A. A US exporter sells a car to a German importer. The importer pays with a dollar denominated check drawn on a US bank account.(a). Consider the diagram. Analyze the effects of a temporary increase in the European money supply on the dollar/euro exchange rate. (b). What is the interest parity condition? Explain why the interest parity condition must hold if the foreign exchange market is in equilibrium.Coffee grown in Guatemala is priced at 17 Guatemalan quetzal per pound (Guatemalan quetzal, or GTQ, is the currency of Guatemala). Comparable coffee grown in the U.S. is priced at $8.40 per pound. One Guatemalan quetzal trades for $0.13 in the foreign exchange market. Find the real exchange rate from the perspective of the United States and from the perspective of Guatemala, and determine which country's coffee is more competitively priced? Instructions: Enter your responses rounded to two decimal places. Real exchange rate from the perspective of the U.S. is Real exchange rate from the perspective of Guatemala is Coffee is more competitively priced in [Guatemala V
- Currencies and currencies cannot be the subject of foreign exchange transactions by confronting supply with demand in the foreign exchange market. Select one:true FalseExplain the current system of managed floating exchange rates.The following table shows the value of credits and debits in four balance-of-payments accounts in the fictional economy of Moraha. Debits Balance-of-Payments Account (Billions of dollars) 80 30 35 25 Merchandise Services Income Receipts Unilateral Transfers Total 170 Based on the total values of Moraha's debits and credits, there is Moraha. This means that Moraha has a deficit in the Credits (Billions of dollars) 60 20 40 20 140 money flowing out of Moraha to foreign countries than there is account.
- the key role played by the law of one price in determining exchange rates.What could cause an increase in the supply of Argentine pesos on the foreign exchange market?  (Pick either a, b, c, or d) a) A decrease in portfolio investment in Argentina b) A decrease in the value of Argentine exports c) an increase in foreign direct investment in Argentina d) an increase in the value of Argentine importsWhat are the short-run and long-run determinants of exchange rates, under the condition of free markets?
- Consider the exchange rate between the Saudi riyal and the euro. Suppose the Saudi government and the Eurozone governments agree to fix the exchange rate at 1 riyal per euro, as shown by the grey line on the following graph. Refer to the following graph when answering the questions that follow. EXCHANGE RATE (Riyal per euro) 4.0 3.5 3.0 1.5 1.0 0.5 0 0 4 Supply of Euros Demand for Euros 8 12 16 20 QUANTITY OF EUROS (Billions) 24 28 32 At the official riyal price of euros, there is a At the official exchange rate of 1 riyal per euro, the euro is pay and the Saudi riyal is ▼ for European exports than they would with a free-floating exchange rate. of euros in the foreign exchange market. , which means that Saudis Suppose the governments in the Eurozone and Saudi Arabia agree to change the official exchange rate from 1 riyal per euro to 2 riyal per euro. The action represents a of the euro and a of the riyal.Economic logic may tell us that a country with a higher interest rate, thus a higher rate of return, should be able to attract foreign capital and that a country with a lower interest rate, thus a lower rate of return, should experience an outflow of capital. If a country is experiencing a large net capital inflow its currency is likely to appreciate, while a country experiencing a large net capital outflow would likely see its currency depreciate (assuming a floating exchange rate). However, according to interest rate parity conditions a country with a higher interest rate would see its currency depreciate, while the currency of the lower interest rate country would appreciate. What is the main reason the outcome under interest rate parity conditions? Question 4 options: The assumption that countries have an identical real interest rate The relative interest rate level is not a factor for investment decisions Investors do not seek…How is the value of a flexible exchange rate determined? Question 10 options: Determined by demand and supply in the foreign exchange market Set by the International Monetary Fund Set by official government policy Depends on the foreign currency reserves of the Federal Reserve
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