US government's credit rating is high mainly because US has had the highest GDP in the world for more than the past half century. Source of US gov't income is the tax revenue, which is proportionate to the GDP. It can sell new issues of bonds to partially retire maturing debts. It can print dollars that are also accepted all over the world. All of the above

US government's credit rating is high mainly because US has had the highest GDP in the world for more than the past half century. Source of US gov't income is the tax revenue, which is proportionate to the GDP. It can sell new issues of bonds to partially retire maturing debts. It can print dollars that are also accepted all over the world. All of the above

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 23QA

See similar textbooks

Related questions

Q: Globalization has led to the progressive integration of capital markets around the world, allowing…

A: South Korean wons are deposited in a bank in Brazil : Eurocurrency DepositsEurocurrency is the term…

Q: What is the nominal cost of borrowing the JPY debt in US$ terms?

A: Currency exchange rate:The relative worth of two currencies, or the amount of one currency that may…

Q: Why in the USA's FDI, bank loans are not used too much compared to non-bank loans? (18% for bank…

A: There are a number of reasons why non-bank loans are more commonly used in foreign direct investment…

Q: Pound 0.64/$ in London, 1.04/Euro in New York, and Pound 0.64/Euro in Frankfurt. Depending on this…

A: Given, Pound / $ = 0.64 / $ $ / Euro = 1.04 / Euro Pound / Euro = 0.64 / Euro Now, By dividing…

Q: With emphasis on Ghana’s monetary system, explain the term inflation targeting. Hence, highlight the…

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: Solve the question by showing work. Question 1 The manager is considering the purchase of…

A: Answer 1:- Country A government bond will be better option to purchase. Explanation:- Country A has…

Q: Assume your U.S. firm currently has a profit center in Malaysia, receiving a significant number of…

A: If your U.S. firm has a profit center in Malaysia and receives a significant amount of Malaysian…

Q: explain how this will impact the supply of and demand for loanable funds and the interest rate in…

A: Let us consider an initial situation where the tax cuts for the business sector have not yet been…

Q: The main difference between the Federal Reserve in the US and other central banks is that the Fed is…

A: A central bank refers to a financial institution that has privileged control over the production of…

Q: International Finance (chapter 21) Question Explain how each of the following will affect the…

A: The exchange rate of every country has fluctuates by the import and export of that country. An…

Q: If the U.S. dollar appreciates, an MNC's _____. A. U.S. sales will probably decrease B. exports…

A: A multinational corporation has offices, facilities and other assets in at least one country other…

Q: If national income Y = 10,500, disposable income Yd = 8,500 , consumption is C = 8,000, transfer…

A: The answer is stated below:

Q: Which of the following statements is true of export financing? Governments may promote exports by…

A: Export companies are exporting the product to outside the country that manufactured in the domestic…

Q: The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying…

A: The cost of debt is the minimum rate on the funds provided to the firm as a debt. The cost of debt…

Q: Suppose you work at the FOREX desk of a multinational bank. No particular country is the home…

A: The bank could make a UIA profit if the no-arbitrage price is not similar to the quoted exchange…

Q: e If the U.S. dollar appreciates relative to the MXN (Mexican peso) over time, the dollar cost to a…

A: Currency appreciation will impact on the export and import in export prices will increase but in…

Q: International Finance (chapter 21) Question Explain how each of the following will affect the…

A: The exchange rates show the value of one currency in terms of the other. The level of exchange rates…

Q: . The Central Bank of the Bahamas pegs the Bahamian Dollar to the United States Dollar at a price of…

A: Given, The information regarding the Central Bank of the Bahamas pegs the Bahamian $ to the United…

Q: A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds…

A: Given that U.S Company borrow 10000 pound at rate of 6%, they are supposed to provide the 10600…

Q: The following table contains data for a hypothetical closed economy that uses the dollar as its…

A: Y= C+ I+ G. 1110= C+ 360 +300 C= 1110-360-300 C= 450 Consumption= 450 million of dollars.

Q: 6. If the U.S. runs a current account deficit next year, which of the following are necessarily…

A: Current account deficit means the income earned is lesser than the expenses incurred. this can be…

Q: Assume the following to be a portion of the simplified balance of payments statement for a…

A: given information exports = $900 imports = -675 capital outflow = -225 capital inflow = $135

Q: Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the…

A: Gdp stand for gross domestic product which means the monetary value of a country by evaluation of…

Q: he U.S. interest rate is higher than the U.K. interest rate, will the U.K. investors place…

A: Exchange rates are governed by the inflation and the interest rate and change according to that.

Concept explainers

Currency Market

The currency market, also known as the foreign exchange market, consists of currencies worldwide. This market determines the rate of all currencies based on the buying and selling of forex. It is an over-the-counter market. It is the largest and most liquid market based on trade volume.

Question

US government's credit rating is high mainly because

		US has had the highest GDP in the world for more than the past half century.
		Source of US gov't income is the tax revenue, which is proportionate to the GDP.
		It can sell new issues of bonds to partially retire maturing debts.
		It can print dollars that are also accepted all over the world.
		All of the above

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

Step 2

Step 3

Step 4

Step by step

Solved in 4 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $1,110 million. Enter the amount for consumption. National Income Account Government Purchases (G) Taxes minus Transfer Payments (T) Consumption (C) Investment (I) Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. National Saving (S) = Public Saving Y-T-G S Value (Millions of dollars) 300 240 Y-C-T $ Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private Saving million million 210 million Based on your calculations, the government is running a budget
Solve the question by showing work. Question 1 The manager is considering the purchase of government bonds in either country A, B, or C. The manager notices that for country A, it has a foreign exchanges/short term debt ratio of 150% and a debt to GDP ratio of 40%. For country B, foreign exchange/short term debt ratio is 79% and debt to GDP ratio is 87%. For country C, its economy is dominated by fishing industry and has a GDP in the most recent year of $80 billion. Which country’s government bonds do you want to purchase? Country A Country B Country C 1/3 into country A and the rest into country B Question 2 The manager has noticed that the yield curve is upward sloping in this country. The current portfolio in this country is 60% in stocks and 40% in bonds. Suggest changes to the portfolio based on this information. Shift money from stock to bond. Shift money from bond to stock. Sell all stock and bonds and only keep cash. Borrow more money and short stocks.
Solve the problem
Explanation
Answer
Why in the USA's FDI, bank loans are not used too much compared to non-bank loans? (18% for bank loans and 38% for nonbank loans) Why the direct finance is more important than indirect finance in the USA's financial market?
Suppose you work at the FOREX desk of a multinational bank. No particular country is the home country for you as your responsibility is to conduct foreign exchange trade in whichever way is profitable for the bank. Using this as your guideline, consider the following data: S0 = ¥92/US$ S180 = ¥92/US$ IUS = 2% per annum IJapan = 0.09% per annum With a starting amount of US$10 million or its Yen equivalent, can you make a UIA profit? What if a CIA was conducted at F180 of ¥90/US$? What are your observations?
International Finance (chapter 21) Question Explain how each of the following will affect the relative values of the dollar and the French franc: Income growth higher in the United States than in France. Inflation higher in France than in the United States. A real interest rate higher in the United States than in France PLease solve 1
Back in the early 2010s Some EU countries like Greece and Cyprus spent much more money than it can earn from its fiscal revenues, resulting a failure in paying back the principal and interests on the national bonds, thus resulted a sovereign debt risk. 2. The main difference between the Federal Reserve in the US and other central banks is that the Fed is actually a banking system that has several independent banks covering an area of several states instead of one single bank. Please just tell. Statement is true or false
1. With emphasis on Ghana’s monetary system, explain the term inflation targeting. Hence, highlight the core objective of monetary policy and the tools adopted by the mother bank, the Bank of Ghana in carrying out the monetary policy 2. Assuming the Nigerian Government through the Federal Bank of Nigeria sells government bonds to fight Ebola, and at the same time NIGEL Oil Firm is also selling corporate bond to increase its production. Under what conditions will the production-linked corporate bond be over-subscribed at the expense of the government bond. Kindly explore all possible scenarios 3. Explain in detail how an improvement in the national identification system can reduce adverse selection and moral hazard in the banking sector. Explore all possible scenarios
Consider the information about the economy of Pakistan. Note that the currency of Pakistan is the rupee. The government purchases: 3.00 trillions of rupees. Individuals consume: 11.30 trillions of rupees. Individuals save: 5.14 trillions of rupees. Businesses invest: 1.30 trillions of rupees. Foreigners spend: 0.69 trillions of rupees to purchase Pakistani firms. Pakistan imports: 1.92 trillions of rupees. Pakistan exports: 1.31 trillions of rupees. Calculate Pakistan's GDP. Assume that the values are all current and no conversions need to be made. Give your answer in terms of trillions of rupees, and round to two decimals.
Suppose the Australian government has announced tax cuts for the business sector. Using the loanable funds model, explain how this will impact the supply of and demand for loanable funds and the interest rate in Australia.