2/11 Class

Question 1

cross rate

Answer 1

exchange rate between two foreign currencies, depends on relative movement between currencies

Question 2

speculation

Answer 2

if they feel a currency will appreciate, they invest now and hold
if they feel it will depreciate they borrow that currency and convert it at appreciated value

Question 3

carry trade

Answer 3

capitalize on different interest rates between countries
borrow at lower rates, Japan, USA
invest at higher rates Brazil, Austrailia

Question 4

Chapter 4 problem 1

Answer 4

S=1.73
St-1 = 1.66
End-Beg/Beg
1.66-1.73/1.73 = -4% -.04

Question 5

2.

Answer 5

a. demand will increase
b. supply of the Canadian dollar will go down
c.

Question 6

3.

Answer 6

a. higher demand for British rates because they want to earn that rate of return
b. supply will go down
c. increase

Question 7

4.

Answer 7

a.

Question 8

6.

Answer 8

positive/direct relationship

Question 9

11.

Answer 9

there are too many factors affecting the value of currency

Question 10

15,

Answer 10

capital flows