- See the exchange rate tables out in the Feb 10 newspaper. The exchange rates listed here will reflect Feb 9 currency trading. For (a) the British Pound, (b) the Euro, (c) the Japaneese Yen and (d) each country which has a currency called a “dollar” list the exchange rate and tell whether the US dollar has appreciated or depreciated since the last trading day with respect to that currency.
- If the exchange rate (E = ¥/$) between Yen and Dollars increases then which currency is appreciating and which is depreciating?
- One U.S. dollar is trading on the foreign exchange market for about 1.47 Chesterfield ales (the Chesterfield currency). Therefore, one Chesterfield ale would have purchased how many U.S. dollars?
- Suppose that the Mexican Peso is trading at 10 pesos per dollar, the interest rate in the US is 5% and the interest rate in Mexico is 4%. What must happen to the exchange rate in order for the interest rate parity condition to hold?
- Assuming the law of one price, explain what the exchange rate between U.S. dollars and yen has to be if the price of steel in Japan is 15,000 yen per ton and the price in the U.S. is $125 per ton (assume no transaction costs).
- If the interest rate on euro-denominated assets is 7 percent and it is 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, for Francois the Frenchman what is the expected rate of return on dollar-denominated assets?
Excel Problem: For this problem, you must calculate your answer using excel and upload the spreadsheet.
- Suppose that the Thai Baht is trading for $0.02, inflation in the US is 3% and inflation in Thailand is 1%. What must happen to the exchange rate in order for the purchasing power parity condition to hold?
8．Background: This is a simple purchasing game. You work for a large food processing company and your goal is to purchase as much wheat as possible either on the domestic market or on the international market. Usual rules apply, 5 points for the two-thirds with the most wheat, 2 points for the bottom third.
- If the exchange rate (E = ¥/$) between Yen and Dollars increases then which currency is appreciating and which is depreciating?
- One U.S. dollar is trading on the foreign exchange market for about 1.47 Chesterfield ales (the Chesterfield currency). Therefore, one Chesterfield ale would have purchased how many U.S. dollars?
- Suppose that the Mexican Peso is trading at 10 pesos per dollar, the interest rate in the US is 5% and the interest rate in Mexico is 4%. What must happen to the exchange rate in order for the interest rate parity condition to hold?
- Assuming the law of one price, explain what the exchange rate between U.S. dollars and yen has to be if the price of steel in Japan is 15,000 yen per ton and the price in the U.S. is $125 per ton (assume no transaction costs).
- If the interest rate on euro-denominated assets is 7 percent and it is 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, for Francois the Frenchman what is the expected rate of return on dollar-denominated assets?
Excel Problem: For this problem, you must calculate your answer using excel and upload the spreadsheet.
- Suppose that the Thai Baht is trading for $0.02, inflation in the US is 3% and inflation in Thailand is 1%. What must happen to the exchange rate in order for the purchasing power parity condition to hold?
8．Background: This is a simple purchasing game. You work for a large food processing company and your goal is to purchase as much wheat as possible either on the domestic market or on the international market. Usual rules apply, 5 points for the two-thirds with the most wheat, 2 points for the bottom third.