Ch2
1. Balance of
Payments
a.
Of what is the current account generally composed?
b.
Of what is the capital account generally composed?
13. Exchange
Rate Effects on Trade
a.
Explain why a stronger dollar could enlarge the U.S. balance-of-trade deficit.
Explain why a weaker dollar could affect the U.S. balance-of-trade deficit.
b.
It is sometimes suggested that a floating exchange rate will adjust to reduce
or eliminate any current account deficit. Explain why this adjustment would
occur.
c.
Why does the exchange rate not always adjust to a current account deficit?
Ch3
15. Evolution of Floating Rates Briefly describe the
historical developments that led to floating exchange rates as of 1973.
18. Foreign Exchange You just came back from Canada,
where the Canadian dollar was worth $.70. You still have C$200 from your trip
and could exchange them for dollars at the airport, but the airport foreign
exchange desk will only buy them for $.60. Next week, you will be going to
Mexico and will need pesos. The airport foreign exchange desk will sell you
pesos for $.10 per peso. You met a tourist at the airport who is from Mexico
and is on his way to Canada. He is willing to buy your C$200 for 1,300 pesos.
Should you accept the offer or cash the Canadian dollars in at the airport?
Explain.
Ch4
4. Income Effects on Exchange Rates Assume that the
U.S. income level rises at a much higher rate than does the Canadian income
level. Other things being equal, how should this affect the (a) U.S. demand for
Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium
value of the Canadian dollar?
16. Economic Impact on Capital Flows How do you
think the weaker U.S. economic conditions could affect capital flows? If
capital flows are affected, how would this influence the value of the dollar
(holding other factors constant)?
Ch5
7. Speculating with Currency Options When should a
speculator purchase a call option on Australian dollars? When should a
speculator purchase a put option on Australian dollars?
25. Estimating Profits from Currency Futures and
Options One year ago, you sold a put option on 100,000 euros with an expiration
date of 1 year. You received a premium on the put option of $.04 per unit. The
exercise price was $1.22. Assume that 1 year ago, the spot rate of the euro was
$1.20, the 1-year forward rate exhibited a discount of 2 percent, and the
1-year futures price was the same as the 1-year forward rate. From 1 year ago
to today, the euro depreciated against the dollar by 4 percent. Today the put
option will be exercised (if it is feasible for the buyer to do so).
a. Determine the total dollar amount of your profit
or loss from your position in the put option.
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