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7) Suppose that as a policy maker you increased money supply to increase in-
vestment to decrease
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- 2. Consider an example of rate-of-return calculation. Suppose that Foreign bank pays 10% annual interest rate in cF. Right now, the exchange rate is E = 2cH/cF. In one year, you expect the exchange will be 1.8cH/cF. You are now planning depositing 100CH into a foreign bank account using the current exchange rate, wait one year, receive the interest from the bank, withdraw all money in the account, and exchange the money into cH. 2.a. Based on your expected exchange rate, not using the simple rule, answer the exact foreign rate of return. 2.b. Using the simple rule, answer the Foreign rate of return.a) Using the following information, determine each one of the theoretical Exchange Rates (E.R.) according to International Fisher Effect. b) Show how Money Market Arbitrage could be done assuming that the loan is 1,000 units of the currency of the country where the loan is contracted. Determine the profit in the currency in which the loan was contracted. ΜARKET ΜARKET E.R. E.R. COUNTRY CURRENCY INTEREST Dec-01 Dec-02 Dec-02 Mexico MXP 12 % 19.56 20.15 Turkey TRY (Lira) 6 % 5.9419 6.07673 Australia AUD 4 % 1.7759 1.81183 Jаpan JPY 8 % 105.866 113.978 United GBP 5 % 0.5991 0.617849 Kingdom (UK) South Korea KRW (Won) 9% 1,658.62 1,793.37 Canada CAD 5 % 1.3736 1.4942 U.S.A.. USD 3%Note: use of chat gpt is strictly prohibited...otherwise I will give down vote.
- 4) Suppose the price level in India is 9,500, the price level in the United States is 140, and the price level in Brazil is 750. Suppose the current nominal exchange rates are 75 Indian rupee per dollar and 5 Brazilian real per dollar. Calculate the real exchange rates (rounded to two decimal places) between each pair of countries. Note that you will have to first calculate the nominal exchange rate between Brazil and South India before calculating the real exchange rate between those two countries. (4A) Where does the market for foreign currency come from? How does this market work if we use the flexible exchange rate system? Using terms from lecture what happens to both countries currency if there is a shift of supply or demand? There were terms given that are used to describe changes in currency exchange rates, define and use these B) What is the equation used to get the U.S. price of a foreign good? If a Mexican good costs 75 pesos and the exchange rate is $2/peso what is the U.S price? C) If the demand for travel to Mexico goes down what happens to the exchange rate? Answer for the U.S. dollar and the Mexican peso. Now the demand to invest in Mexican real estate goes up, what now happens to the exchange rates?7, If the interest rate is 8% in the US and 5% in Europe, then according to the interest rate parity theory, in the long run: (a) Will the dollar appreciate or depreciate with respect to the euro? (b) By what percent?
- Question 2 of 25 In which situation is a country most likely to choose a flexible exchange rate for its currency? O A. A country believes that its currency will be in low demand in global markets. B. A country worries that the value of its currency could rise and fall unpredictably. C. A country has a reputation for having a strong and stable economy over time. O D. A country wants to make sure that its currency is stable in all economic situations.17. Question 17 options: ---------- is the technique of protecting against the potential losses that result from adverse changes in exchange ratesUsing Demand and Supply Analysis. Use the line drawing tool to show the effects of an increase in Japanese interest rates on the exchange rate between the British pound and the Japanese yen. ¥ The vertical axis will be yen per pound, I Draw and properly label a single line. Carefully follow the instructions above, and only draw the required object. 400- 350- 300- 250- 200- 150- 100- 50- The Market for Pounds Yen per Pound A Pounds SE DE Q