Economics

Question 1

“Up-the-bid and multiply, down the ask and divide”

Answer 1

when performing exchange calculations

Question 2

Cross Rates w/ Bid-Ask Spreads

Answer 2

(A/C)bid = (A/B)bid * (B/C)bid

(B/C)bid = 1/(C/B)ask

Question 3

Value of a forward contract prior to expiration

Answer 3

Vt = [(FPt-FP) * Contract Size] / ( 1 + r*(days/360))

where,
r= interest rate

Question 4

Covered Interest Rate Parity

Answer 4

F = [( 1 + Ra(days/360)) / (1 +Rb(days/360))] * Spot

Question 5

Forward Premium

Answer 5

F-S0 = S0 * (days/360)/(1+Rb(days/360))(Ra-Rb)

Question 6

Domestic Fisher Relation

Answer 6

Rnominal = Rreal + E(inflation)

Question 7

International Fisher Relation

Answer 7

RnominalA - RnominalB = E(inflationA) - E(inflationB)

Question 8

Expansionary Monetary Policy

Answer 8

i.r. decreases&raquo_space; capital investment decreases&raquo_space; domestic currency

Question 9

Expansionary Fiscal Policy

Answer 9

Gov’t borrowin Increases&raquo_space; Interest Rate increases&raquo_space; Foreign Investment&raquo_space; Domestic Currency Increases

Question 10

Change in Price of Stock Market = ChangeinGDP + Change in Earnings/Change in GDP + Change in Price of Stock Market/ChangeinEarningsofStockMarket

Answer 10

…

Question 11

Cobb Douglass Function

Answer 11

Y = T * K^alpha*L^(1-alpha)

where, 
T = total factor productivity
K = Capital
L = Labor
alpha = share of output to capital
1-alpha = share of output to labor

Question 12

Marginal Product of Capital

Answer 12

MPK = [(alphaY)/K] ——> alpha = (MPKK) / Y

Question 13

Labor Productivity Growth Rate

Answer 13

= Growth rate due to technological change + growth rate due to captial deepening

= “better tech + more tech”

Question 14

Growth Accounting Relation

Answer 14

Delta(Y) / Y = Delta(A) / A + alpha * (delta(K)/K) + (1-alpha)*(delta(L)/L)

which states,
G.R. in potential GDP = LR G.R. of Tech + alpha(LR G.R. of Capital) + (1-alpha)(delta(L)/L)

Question 15

Labor Force Participation

Answer 15

labor force / working age population

Question 16

Output per worker

Answer 16

= Growth Rate in tech / Labor’s share of GDP

g = theta / (1-alpha)

Question 17

Sustainable growth rate of output

Answer 17

G* = g* + delta(L) = Theta/(1-alpha) + delta(L)

where,
G* = sustainable growth rate of output per capita + growth of labor –delta(L)–

Question 18

Covered Interest Rate Parity

Answer 18

(1+Rdomestic) - [((1+Rforeign)*Forward)/Spot] = 0

Also, reorganized,
Forward/Spot = (1+Rdomestic)/(1+Rforeign)

Question 19

Forward premium

Answer 19

= forward rate - spot rate