Chapter 4 Exchange Rate Determination 1. The value of the Australian dollar (A$) today is $0.73. Yesterday‚ the value of the Australian dollar was $0.69. The Australian dollar _______ by _______%. A) depreciated; 5.80 B) depreciated; 4.00 C) appreciated; 5.80 D) appreciated; 4.00 ANSWER: C SOLUTION: ($0.73 – $0.69)/$0.69 = 5.80% 2. If a currency’s spot rate market is _______‚ its exchange rate is likely to be _______ to a single large purchase or sale
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Exchange rate development in Ethiopia Monetary Development The legal tender currency of Ethiopia was issued on 23 July 1945 by defining the monetary unit as the Ethiopia dollar (E$) with a value of 5.52 grains (equivalent to 0.355745 grams) of fine gold. The linkage with fine gold was in accord with the monetary system established by the Bretton Woods Agreement of 1944. For the five years following the proclamation of the national currency (1945–1950)‚ money supply of the country was determined
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In the face of rising inflationary pressure in Hong Kong‚ some people have suggested that the Linked Exchange Rate system is the root cause of the situation and that the Hong Kong dollar should no longer be linked to the US dollar. The Financial Secretary already stated in his blog on 14 August that the Link continues to be the most appropriate exchange rate arrangement for Hong Kong. I will elaborate further on a few related issues. Many people who advocate un-pegging the Hong Kong dollar from
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to volatile exchange rate because volatility increases exchange rate risk. If the participants in international trade are aware about exchange rate risks‚ they may prefer to switch to domestic activities where profits are relatively less uncertain rather than continuing trading in foreign markets. Alternatively‚ international traders may attempt to use forward foreign exchange markets in order to hedge against any possible losses. EXCHANGE RATE SYSTEM IN INDIA The exchange rate regime in our
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THE EFFECTS OF EXCHANGE RATE IN INFLATION OUTPUT AND THE CURRENT ACCOUNT ABSTRACT The empirical studies on the effects of changes in exchange rates on inflation and real activity can be broadly divided into four categories: Single-equation econometric methods‚ Vector autoregressive (VAR) models‚ Structural macro econometric models and DSGE models - Dynamic stochastic general equilibrium. Methodologies: First‚ most participants use single-equation econometric methods that estimate
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Forecasting exchange rate volatility: The superior performance of conditional combinations of time series and option implied forecasts☆ Guillermo Benavides a‚⁎‚ Carlos Capistrán b a b Banco de México‚ Mexico Bank of America Merrill Lynch‚ Mexico article info Article history: Received 26 February 2010 Accepted 5 July 2012 Available online 16 July 2012 Keywords: Composite forecasts Forecast evaluation GARCH Implied volatility Mexican peso–U.S. dollar exchange rate Regime switching
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Describe how these three typical transactions should affect present and future exchange rates. Joseph E. Seagram & Sons imports a year’s supply of French champagne. Payment in euros is due immediately. ANSWER. The euro should appreciate relative to the dollar since demand for euros is rising. b. MCI sells a new stock issue to Alcatel‚ the French telecommunications company. Payment in dollars is due immediately. ANSWER. The spot value of the dollar should increase as Alcatel demands dollars to pay for
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Differentiation Financial Hedging International Finance in Practice: Porsche Powers Profit with Currency Plays CASE APPLICATION: Exchange Risk Management at Merck Summary MINI CASE: Economic Exposure of Albion Computers PLC How to Measure Economic Exposure 1. Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate a) Can have a significant economic consequences for U.S. firms. b) Can have a significant economic consequences for Japanese
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Therefore‚ first section in the report discusses the background of US-China trading. The next section explains the dynamics of exchange rate mechanism works and how it set upon. Then‚ fourth section elaborates the factors that lead to distortions in trade between two countries due to unfair trade. The fifth section clarifies about China’s exchange rate policy and its impact on the global financial and economic market while subsequent section analyze about the factors behind the trade deficit
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Exchange rates have a seemingly direct effect on the price of imports and exports. The concept of the pass-through effect relates to the degree by which a currency fluctuates and the impact this has on import and export prices in the market. Exchange rate pass-through refers to the percent change in the exchange rate between the exporting and importing countries. The degree to which different currencies fluctuate against each other and against various imports and exports is an entirely different
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