Chapter 10, Problem 3CTD

a)

Summary Introduction

To discuss: The current economic history of Country B point out about the relationship between exchange and price inflation rates.

Introduction:

A value of one country’s currency is used to convert into another country’s currency is termed as an exchange rate. The rate of exchange can be either floating or fixed. The two components of the exchange rates are the foreign currency and the domestic currency.

A rise in the value of the goods and services in an economy for a period of time is termed as inflation.

Summary Introduction

To discuss: The other factors which define the exchange rate of Country B’s currency.

b)

Summary Introduction

To discuss: Whether the decline in the value of Country B’s currency against the Country U’s dollar is good, bad, or a mixed bag for E Company.

c)

Summary Introduction

To discuss: The type of foreign exchange rate risks of E Company.

Introduction:

Risk refers to the movement in the value of an investment. The movement can be positive or negative. The investor will gain if the movement is positive, and the investor will lose if the movement is negative.

Summary Introduction

To discuss: Whether the E Company can reduce this risk and its approach to reduce risks.

d)

Summary Introduction

To discuss: Whether the E Company’s decision to attempt and hedge against further appreciation of Country B’s currency in the early 2000s is a good decision and its alternatives.

e)

Summary Introduction

To discuss: Whether the E Company’s operation is a wise decision.

f)

Summary Introduction

To discuss: The impact on E Company due to the depreciation in the currency.