ording to the monetary approach to the exchange rate, a 10% increase in money supply in Canada would cause the Canadian dollar exchange rate to: a. appreciate by 10%. b. appreciate by 5%. c. depreciate by 10%. d. stay the same
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- Match each term in Column A with its related definition in Column B.Column A1. Spot rate2. Currency appreciation3. Translation risk4. Transaction risk5. Exchange rateColumn Ba. The rate at which one currency can be traded for another currency.b. The possibility that future cash transactions will be affected by changing exchange rates.c. A month ago, $1 U.S. was worth 8.5 Mexican pesos. Today, $1 is worth 9.0 Mexicanpesos. The U.S. dollar has undergone what?d. The degree to which a firm’s financial statements are exposed to exchange ratefluctuation.e. The exchange rate of one currency for another for immediate delivery (today).Exercise 2 (LO 2) Spot rates and forward rates. On January 1, one U.S. dollar can be exchanged for eight foreign currencies (FC). The dollar can be invested short term at a rate of 4%, and the FC can be invested at a rate of 5%. 4. Explain why a weak dollar relative to the FC would likely increase U.S. exports.Exercise 2 (LO 2) Spot rates and forward rates. On January 1, one U.S. dollar can be exchanged for eight foreign currencies (FC). The dollar can be invested short term at a rate of 4%, and the FC can be invested at a rate of 5%. 5. Discuss what would happen to the forward rate if the dollar strengthened relative to the FC.
- Exercise 2.12. At the close of business on 20 November 2020, the exchange rate for Australian dollars against the British pound is 1.7148 (GBP is the domestic currency). This means that you get A$1.7148 for £1. The Bank of England rate is 0.5% and the Reserve Bank of Australia rate is 2.5%. Find the 3-months forward price of a Australian dollar (in GBP).Exercise 2 (LO 2) Spot rates and forward rates. On January 1, one U.S. dollar can be exchanged for eight foreign currencies (FC). The dollar can be invested short term at a rate of 4%, and the FC can be invested at a rate of 5%. 3. If the spot rate is 1 FC = $0.740 and the 90-day forward rate is $0.752, what does this sug- gest about interest rates in the two countries?Exercise 2 (LO 2) Spot rates and forward rates. On January 1, one U.S. dollar can be exchanged for eight foreign currencies (FC). The dollar can be invested short term at a rate of 4%, and the FC can be invested at a rate of 5%. 1. Calculate the direct and indirect spot exchange rates as of January 1.
- QUESTION 2 The annual interest rate for bank deposits in Euros is 0.025 while that on US dollar deposits is 0.035. A Euro costs 1.20 dollars. The forward exchange rate for next year is 1.20 dollars per Euro. What is the expected return on investing in Europe. 0.025 0.05 0.01 -0.02 QUESTION 3 The US interest rate is 0.05 while the interest rate in Australia is 0.10. What is the expected return on investing in Australia. 0.05 0.10 0.12 0.02Problem 6.13 Required: Suppose you conduct currency carry trade by borrowing $1 million at the start of each year and investing in the New Zealand dollar for one year. One-year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZ$) are provided below for the period 2000 - 2009. Note that interest rates are one-year interbank rates on January 1st each year, and that the exchange rate is the amount of New Zealand dollar per U.S. dollar on December 31 each year. The exchange rate was NZ$1.9088/$ on January 1, 2000. Fill out columns (4) – (7) and compute the total dollar profits from this carry trade over the ten-year period. Also, assess the validity of uncovered interest rate parity based on your solution of this problem. You are encouraged to use the Excel spreadsheet software to tackle this problem. Note: Negative value should be entered with a minus sign. Enter profit value answers in dollars, rather than in millions of dollars. Do not round…D3 Suppose the 1-year domestic interest rate is 0.28, keeping in mind that means (100\times×0.28)%. Suppose also that the 1-year expected exchange rate is 59, and the current spot exchange rate is 50, both measured in domestic currency per foreign currency. What is the 1-year foreign interest rate according to uncovered interest parity?
- Question 3 The spot dollar-euro rate is $1.20/€1 and the forward rate is $1.15/€1. You expect the spot dollar-euro rate to be $1.05/€1 in one year's time. You have €1 million to speculate with using the forward exchange market. (iii) What is your profit in both euros and dollars if you are correct and the spot dollar- euro rate is $1.05/€1 in one year's time? (iv) What is your loss in both euros and dollars if you are wrong and the spot dollar-euro rate is $1.40/€1 in one year's timeFINAL EXAM SU2021 A Saved Help Save & E Required: If the current exchange rate is $1.60/£, the one-year forward exchange rate is $1.85/£, and the interest rate on British government bills is 5% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.) 19 Risk-free dollar-denominated return % 01:54:00Q. 4 Suppose the annual interest rate in Australia is 1.5% and the interest rate in the United States is 2%. Suppose the spot USD/AUD exchange rate is $73/AUD and the exchange rate on a futures contract for delivery in one year’s time is $75/AUD. (a) Suppose Australian Reserve Bank increases the cash rate, causing Australian interest rates to rise. All else equal, would the USD/AUD exchange rate increase, decrease, or stay the same? (b) An investor wants to save $6,000 USD for a year and is looking for the option with the highest guaranteed return in USD. Would an investor prefer to save $6,000 USD for a year in the United States or in Australia? To support your answer, calculate the profits under each scenario. (c) Does the interest rate parity hold? Provide a calculation to support your answer.