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Homework answers / question archive / Arizona State University ECN 306 Chapter 18 and 19 1)You are an American and usually transact in dollars

Arizona State University ECN 306 Chapter 18 and 19 1)You are an American and usually transact in dollars

Economics

Arizona State University

ECN 306

Chapter 18 and 19

1)You are an American and usually transact in dollars. If the only foreign currency position that you have is that you owe 10,000 Swiss francs for a custom watch that you ordered from Swatch:

 

2. Large Company is a candy manufacturer and one of the ingredients that it uses is cocoa. It is deeply concerned with the market price fluctuations of cocoa. To protect this, it enters into a contract that would allow the company to buy cocoa at a specific price at a given future date. This is an example of:

 

3. A bank that is active in the Eurocurrency market will:

 

4. If a person's or firm's financial welfare can be affected by changes in the value of one currency in terms of another currency, that person or firm is exposed to

a(n)                                                 risk.

 

 

5. When the exchange rate at which an anticipated foreign investment return will be redeemed is determined through a forward exchange contract, a(n)                                                                                                                          results.

 

 

6. A                                             contract allows someone to establish the price today at which he or she will buy a foreign currency at a specified future date.

 

7. For an investor who starts with dollars and wants to end up with dollars in the future, which of the following choices is an example of an uncovered international investment?

 

8. The difference between the current forward exchange rate value of a currency and its current spot exchange rate value is identified as the:

 

 

9.                                            is buying a country's currency spot and selling it forward, while making a profit on the combination of the interest rate in that country and any forward premium on its currency.

 

10. Which of the following countries decided not to be bound by the Kyoto Protocol?

 

 

11. Developing nations would not agree at Kyoto in 1997 to:

 

12. When an investor reduces or eliminates a net asset or net liability position in a foreign currency to reduce risk exposure, that investor is:

 

13. A(n)                                           exists when an activity brings direct losses to people who are not involved in the decision to conduct that activity.

 

14. WTO rules allow countries to restrict the importation of products that the country maintains cause harm to the environment or to the citizens of the country:

 

15. If economic activities produce significant amounts of domestic pollution,

 

 

16. If the law of one price holds, then we would expect that if one dollar exchanges for four yen and if a computer costs $1,000 in the United States, then in Japan, the computer should cost:

 

17. The                                           exchange rates recognizes that as demand for and supply of financial assets denominated in different currencies shift, the shifts place pressure on the exchange rates among the affected currencies.

 

18. The market exchange rate is a(n)                                                     way to compare average income and production levels because the purchasing power parity hypothesis

                                               .

 

19. The                                           is based on the idea that a product that is freely traded in a competitive global market should have the same price everywhere if the prices at different places are expressed in the same currency.

 

20. The law of one price works well for                                                     but does not hold for

                                            .

 

 

21. Which of the following statements is true?

 

22. Purchasing power parity predicts that when the U.S. inflation rate increases relative to the inflation rate of another country, the:

 

23. If the British government, through tighter monetary policy, reduced the supply of British pounds by 10%, we should expect that eventually:

 

24. If investors expect a decrease in the value of the South African rand vis-à-vis other currencies, their actions will cause:

 

25. While the causes of changes in short-term floating exchange rates are difficult to determine, long-term changes in floating exchange rates are related to:

 

26. Everything else remaining unchanged, a decrease in interest rates in the United States is most likely to result in:

 

 

27. Which of the following is the least accurate statement about purchasing power parity (PPP)?

 

28. The primary demand for money is:

 

29. Absolute PPP holds for a product bundle if:

 

30. What implications for international financial repositioning and for the current spot exchange rate would flow from a decrease in the expected future spot rate value of a country's currency?

 

31. The monetary approach to exchange rates is generally:

 

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