You observe the following exchange rates Spot GBP/EUR exchange rate 1.120 € per £ 3 month GBP/EUR forward rate 1.115 Which of the following statements is likely to be true? Select one: O a. Neither of the other options b. UK interest rates are lower than Eurozone interest rates. O c. Speculators are expecting GBP to depreciate against EUR for the next year. Od. UK interest rates aghigher than Eurozone interest rates. O e. Speculators are expecting GBP to appreciate against EUR for the next year.

You observe the following exchange rates Spot GBP/EUR exchange rate 1.120 € per £ 3 month GBP/EUR forward rate 1.115 Which of the following statements is likely to be true? Select one: O a. Neither of the other options b. UK interest rates are lower than Eurozone interest rates. O c. Speculators are expecting GBP to depreciate against EUR for the next year. Od. UK interest rates aghigher than Eurozone interest rates. O e. Speculators are expecting GBP to appreciate against EUR for the next year.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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If the U.S. interest rate falls relative to other countries' interest rates, then the exchange rate O a. rises only if it was the foreign interest rate that changed. O b. falls only if it was the U.S. interest rate that changed. O c. definitely rises. O d. definitely falls. O e. does not change.
Purchasing power parity theory would suggest that if the Canadian price of a basket of goods is C$1,800, but the same basket in the United States is U.S.$1,300, and the actual exchange rate is C$1.30 = U.S.S1.00, then the value of the Canadian dollar should O A. depreciate by approximately 8.9 percent. O B. depreciate by approximately 6.2 percent. OC. appreciate by approximately 8.9 percent. O D. appreciate by approximately 6.2 percent. O E. remain unchanged.
On the DD curve, exchange rate depreciation causes output to because it affects a component of aggregate demand. O rise; consumption O rise; the current account O fall; investment fall; the current account
Say that in Miami, in Coral Gables, a big mac cost $4.25 and a large fries cost $2.50. In Japan, the total cost of a big mac and large fries is 81 Yen. The according to purchasing power parity, the exchange rate that equalizes purchasing power of this basket of goods is 8.5 О 12 O 6.5 O 10
Based on the complete model of exchange rate determination, a permanent increase of 8% in the domestic money supply will cause O overshooting of the home exchange rate (i.e., home currency depreciates by more than 8%) both in the short run and in the long run. O the home currency to appreciate by more than 8% in the short run and then depreciate to its long-run level. the home currency in the short run to overshoot its long-run depreciation of 8% and then appreciate over time to its long-run level. the home currency to depreciate by 8% both in the short run and in the long run.
Suppose the exchange rates betwe he United States and Canada are in long -run equilibrium as defined by the idea of purchasing power parity. If the law of one price holds perfectly, then differences between U.S. and Canadian rates of inflation would O be completely offset by changes in the real exchange rate. O have no effect on nominal exchange rates. be completely offset by changes in the nominal exchange rate. O violate the conditions for the law of one price.
The approach to exchange rate determination argues that exchange rates are determined by the supply and demand for a wide variety of financial assets. O a. law of one price b. monetary Oc. asset market Od. balance of payments
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True or False: If the dollar depreciates relative to the Japanese yen, the dollar price of a Japanese camera produced by Nikon becomes less expensive for Americans. O True False
in fall 2011 the euro dollar exchange rate was $1.35 and by spring 2015 it strenghthed to $1.10 . Asssume that the euorpean luxury marketeres cut the price of an $8000 linen suit by 10 percent when launching its spring 2015 collection . how would revenues have been affected when dollar prices were converted to euros?
Question 10 a b and c Assume that there is a free-floating exchange rate. Will the following cause sterling toappreciate or depreciate relative to other currencies? In each case, you should considerwhether there is a shift in the demand or supply curves of sterling (or both) and whichway the curve(s) shift(s). You may assume that the impacts are ceteris paribus, that is,everything else remains the same. Illustrate your answers and give a short explanation interms of currency supply and demand. (a) UK imports increase. (b) UK interest rates rise relative to those abroad.(c) The UK experiences lower inflation than other countries, but with no change in interestrates.
Suppose that a firm is considering opening a plant on the moon, and the current exchange rate is 1,280 moon pieces (mp) per dollar. Also, the wage rate is 22,800 mp per hour. Suppose further that Question Viewer an produce 240 units per hour, while workers on the moon are expected to be able to produce 380 units per hour (the lower gravity level helps them work faster). a. The moon wage rate without considering productiviy is $ /hr (round your response to the nearest penny). b. The moon "relative" wage rate considering productivity is $/hr (round your response to the nearest penny). c. Suppose that the U.S. wage rate is $23.50 per hour. If the U.S. managers want to become the location of choice for production, and if they cannot lower their wage rate due to labor union agreements, what does the labor productivity in the U.S. need to become? The labor produtivity in the U.S. needs to be at least units/hr (round your response to one decimal place).