CHAPTER 19 CURRENCIES AND FOREIGN EXCHANGE

Save this PDF as:
 WORD  PNG  TXT  JPG

Size: px
Start display at page:

Download "CHAPTER 19 CURRENCIES AND FOREIGN EXCHANGE"

Transcription

1 CHAPTER 19 CURRENCIES AND FOREIGN EXCHANGE MULTIPLE CHOICE 1. A currency becomes hard when a) it is backed by gold b) a government declares that it is an international currency c) it has been around for a long time d) people trust it (X) 2. The world s most international currency is the a) U.S. dollar (X) b) British pound c) euro d) Japanese yen 3. This currency dominates nations official foreign exchange reserves. a) U.S. dollar (X) b) British pound c) euro d) Japanese yen 4. An international currency does not fulfill this function. a) medium of exchange b) mode of communication (X) c) store of value d) unit of account 5. The foreign exchange market does not perform this function. a) financing b) clearing c) consulting (X) d) hedging 6. This is a cash market where foreign exchange is available for immediate delivery. a) options b) spot (X) c) futures d) forward 7. The exchange rate affects a) the cost of imported goods b) the cost of exported goods c) the country's inflation rate d) a firm's employment e) all of the above (X) 8. Countries that wish to stimulate exports want the value of their own currency to a) rise b) drop (X) c) hold steady 9. When the U.S. dollar is devalued, it adversely affects a) U.S. exports b) U.S. employment c) U.S. consumer welfare (X) 1

2 10. A country wanting to maximize consumer welfare should attempt to make the value of its currency a) steady b) increase (X) c) decline d) weak 11. The J Curve explains that, right after devaluation, a country s trade deficit will a) quickly improve b) worsen over the long term c) worsen initially before recovering sharply (X) d) unpredictable 12. Price-specie-flow mechanism maintains the equilibrium exchange rate for this system. a) gold standard (X) b) crawling peg c) sliding parity d) wide band e) floating 13. This is a fixed system of exchange rate. a) par value (X) b) wide band c) crawling peg d) flexible 14. This exchange-rate system adjusts the rate slowly by small amounts on a continuous basis. a) par value b) wide band c) crawling peg (X) d) flexible e) gold standard 15. Brazil adjusts its currency continuously while keeping the adjustment small at any point in time. This system is a) adjustable peg b) wide band c) gold standard d) floating e) crawling peg (X) 16. This exchange-rate system does not allow the value of a currency to fluctuate at all. a) gold standard b) soft peg c) par value d) wide band e) all of them allow some degree of fluctuation (X) 17. The United States employs this exchange rate system. a) fixed rate b) gold standard c) semi-fixed rate d) floating rate (X) 18. One problem of the floating system is that it encourages a) uncertainty b) speculation c) inflation d) short-term volatility (X) 2

3 19. When a central bank intervenes to influence exchange rates, the float of a currency is a) clean b) dirty (X) c) filthy 20. Smaller companies have trouble obtaining contracts in this market. a) spot b) futures c) forward (X) d) options 21. This contract is not "standardized." a) futures b) forward (X) c) options 22. A buyer of this contract has the right but not the obligation to complete a transaction. a) futures b) forward c) options (X) d) spot 23. When foreign currencies are rising against the U.S. dollar, a U.S. firm should a) make immediate payments to foreign creditors (i.e., leading) (X) b) delay making payments to foreign creditors (i.e., lagging) c) hasten collection of debts from abroad 24. When the buyer is in a soft currency but the seller is in a hard currency, the seller should use the... currency for invoicing. a) seller's (X) b) buyer's c) third 25. A seller should bill in a... currency. a) strong (X) b) moderate c) weak TRUE OR FALSE 1. A hard currency is hard because of its gold backing. (F) 2. For a currency to become an international currency, the issuing country must possess financial markets that are substantially free of controls. (T) 3. A currency becomes hard or international when the issuing country passes a law for this purpose. (F) 4. A global currency is impossible. (T) 5. Inflation makes it impossible to have a global currency. (T) 6. The foreign exchange market has a central trading floor where buyers and sellers meet. (F) 3

4 7. Business firms do not need to hedge their currency exposure because losses from currency fluctuation are offset by windfall profit in the long run. (F) 8. The spot rate is irrelevant for the preparation of price quotations. (T) 9. The foreign exchange rate is simply a price. (T) 10. A currency's tendency to get out of equilibrium is caused by trade deficits but not trade surpluses. (F) 11. When the U.S. dollar declines in value, American exporters find it more difficult to export. (F) 12. When the U.S. dollar rises in value, it maximizes U.S. consumer welfare but adversely affects U.S. exports and employment. (T) 13. Dollar devaluation makes U.S. products competitive abroad but does not maximize American consumers' welfare. (T) 14. The J Curve phenomenon explains why the trade deficit may get worse after devaluation before recovering later. (T) 15. Devaluation may aggravate inflation. (T) 16. The price-specie-flow mechanism explains that imports will lead to less gold at home, resulting in less money supply. (T) 17. The IMF discourages any use of multiple exchange rates. (T) 18. Dirty floating means that central banks are not willing or able to intervene to support their currencies. (F) 19. Central banks combined resources are not adequate to reverse a fundamental trend in the foreign exchange market. (T) 20. There is evidence that countries have moved away from intermediate exchange rate regimes toward floating. (T) 21. The fixed rate system provides speculators a one-way, no-lose bet. (T) 22. Floating rates do not work well during recessions. (T) 23. Floating rates create a high degree of short-term volatility and the large medium-term swings in exchange rates. (T) 24. Developing countries have realized more benefits than problems from floating exchange rates. (T) 25. Other systems have just as much, if not more of the same flaws, as the floating system. (T) 26. The financial crises were experienced by many emerging markets that maintained soft pegs. (T) 4

5 27. Regarding foreign exchange management products, the first-generation product (i.e., forward contracts) is more popular among users than the second-generation (e.g., options) and third-generation products (e.g., warrants). (T) 28. Multinationals may be able to employ a natural hedge by matching resources and costs in the same currency. (T) 29. There is no relationship between a country's inflation rate and the value of its currency. (F) 30. When both the buyer and the seller are in soft currencies, they should consider a third currency for invoicing. (T) 31. Globalization offers some protection from currency fluctuations. (T) 32. The local (overseas) manufacturing market-entry strategy does not reduce currency risk. (F) 5

QUESTIONS. 1. Explain how inflation and nationalism make it impossible for a single global currency to exist.

QUESTIONS. 1. Explain how inflation and nationalism make it impossible for a single global currency to exist. QUESTIONS 1. Explain how inflation and nationalism make it impossible for a single global currency to exist. A global currency is practically impossible because of national sovereignty and inflation. Because

More information

Assignment 10 (Chapter 11)

Assignment 10 (Chapter 11) Assignment 10 (Chapter 11) 1. Which of the following tends to cause the U.S. dollar to appreciate in value? a) An increase in U.S. prices above foreign prices b) Rapid economic growth in foreign countries

More information

Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A.

Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A. Ch. 38 Practice MC 1. In international financial transactions, what are the only two things that individuals and firms can exchange? A. Currency and real assets. B. Services and manufactured goods. C.

More information

MCQ on International Finance

MCQ on International Finance MCQ on International Finance 1. If portable disk players made in China are imported into the United States, the Chinese manufacturer is paid with a) international monetary credits. b) dollars. c) yuan,

More information

CHAPTER 16 EXCHANGE-RATE SYSTEMS

CHAPTER 16 EXCHANGE-RATE SYSTEMS CHAPTER 16 EXCHANGE-RATE SYSTEMS MULTIPLE-CHOICE QUESTIONS 1. The exchange-rate system that best characterizes the present international monetary arrangement used by industrialized countries is: a. Freely

More information

FLEXIBLE EXCHANGE RATES

FLEXIBLE EXCHANGE RATES FLEXIBLE EXCHANGE RATES Along with globalization has come a high degree of interdependence. Central to this is a flexible exchange rate system, where exchange rates are determined each business day by

More information

Study Questions (with Answers) Lecture 14 Pegging the Exchange Rate

Study Questions (with Answers) Lecture 14 Pegging the Exchange Rate Study Questions (with Answers) Page 1 of 7 Study Questions (with Answers) Lecture 14 the Exchange Rate Part 1: Multiple Choice Select the best answer of those given. 1. Suppose the central bank of Mexico

More information

Seminar. Global Foreign Exchange Markets Chapter 9. Copyright 2013 Pearson Education. 20 Kasım 13 Çarşamba

Seminar. Global Foreign Exchange Markets Chapter 9. Copyright 2013 Pearson Education. 20 Kasım 13 Çarşamba Seminar Global Foreign Exchange Markets Chapter 9 9- Learning Objectives To learn the fundamentals of foreign exchange To identify the major characteristics of the foreign-exchange market and how governments

More information

Businesses are affected by the economy An economy describes how a country spends its money This is determined by 5 factors

Businesses are affected by the economy An economy describes how a country spends its money This is determined by 5 factors Economic Factors Businesses are affected by the economy An economy describes how a country spends its money This is determined by 5 factors Economic Growth Exchange Rates Rates Economic Factors Inflation

More information

CHAPTER 15 EXCHANGE-RATE ADJUSTMENTS AND THE BALANCE OF PAYMENTS

CHAPTER 15 EXCHANGE-RATE ADJUSTMENTS AND THE BALANCE OF PAYMENTS CHAPTER 15 EXCHANGE-RATE ADJUSTMENTS AND THE BALANCE OF PAYMENTS MULTIPLE-CHOICE QUESTIONS 1. According to the absorption approach, the economic circumstances that best warrant a currency devaluation is

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. ECON 4110: Sample Exam Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economists define risk as A) the difference between the return on common

More information

Lecture 3: Int l Finance

Lecture 3: Int l Finance Lecture 3: Int l Finance 1. Mechanics of foreign exchange a. The FOREX market b. Exchange rates c. Exchange rate determination 2. Types of exchange rate regimes a. Fixed regimes b. Floating regimes 3.

More information

Theories of Exchange rate determination

Theories of Exchange rate determination Theories of Exchange rate determination INTRODUCTION By definition, the Foreign Exchange Market is a market 1 in which different currencies can be exchanged at a specific rate called the foreign exchange

More information

Chapter 14 Foreign Exchange Markets and Exchange Rates

Chapter 14 Foreign Exchange Markets and Exchange Rates Chapter 14 Foreign Exchange Markets and Exchange Rates International transactions have one common element that distinguishes them from domestic transactions: one of the participants must deal in a foreign

More information

FOREIGN EXCHANGE AND CURRENCY

FOREIGN EXCHANGE AND CURRENCY Exchange rates represent the linkage between one country and its partners in the global economy. They affect the relative price of goods being traded (exports and imports), the valuation of assets, and

More information

CHAPTER 2 INTERNATIONAL MONETARY SYSTEM SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS

CHAPTER 2 INTERNATIONAL MONETARY SYSTEM SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS CHAPTER 2 INTERNATIONAL MONETARY SYSTEM SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Explain Gresham s Law. Answer: Gresham s law refers to the phenomenon that

More information

The Foreign Exchange Market. Prof. Irina A. Telyukova UBC Economics 345 Fall 2008

The Foreign Exchange Market. Prof. Irina A. Telyukova UBC Economics 345 Fall 2008 The Foreign xchange Market Prof. Irina A. Telyukova UBC conomics 345 Fall 2008 Outline The foreign exchange market is the market where assets denominated in different currencies are traded against each

More information

This chapter seeks to explain the factors that underlie currency movements. These factors include market fundamentals and market expectations.

This chapter seeks to explain the factors that underlie currency movements. These factors include market fundamentals and market expectations. EXCHANGE-RATE DETERMINATION LECTURE NOTES & EXERCISES based on Carbaugh Chapter 13 CHAPTER OVERVIEW This chapter seeks to explain the factors that underlie currency movements. These factors include market

More information

CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE

CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE CHAPTER 12 CHAPTER 12 FOREIGN EXCHANGE CHAPTER OVERVIEW This chapter discusses the nature and operation of the foreign exchange market. The chapter begins by describing the foreign exchange market and

More information

To appear as an entry in the Concise Encyclopedia of Economics, Liberty Fund, Inc., edited by David Henderson.

To appear as an entry in the Concise Encyclopedia of Economics, Liberty Fund, Inc., edited by David Henderson. Foreign exchange Jeffrey A. Frankel September 2005 To appear as an entry in the Concise Encyclopedia of Economics, Liberty Fund, Inc., edited by David Henderson. The foreign exchange market is the market

More information

Thank You for Attention

Thank You for Attention Thank You for Attention Explain how the foreign exchange market works. Examine the forces that determine exchange rates. Consider whether it is possible to predict future rates movements. Map the business

More information

12/03/2012. Currencies and Exchange Rates

12/03/2012. Currencies and Exchange Rates The Canadian dollar is one of 100s of different monies. The three big monies: the U.S. dollar, yen, and euro. In February 2007, one Canadian dollar bought 85 U.S. cents. By November 2007, the Canadian

More information

THE US DOLLAR, THE EURO, THE JAPANESE YEN AND THE CHINESE YUAN IN THE FOREIGN EXCHANGE MARKET A COMPARATIVE ANALYSIS

THE US DOLLAR, THE EURO, THE JAPANESE YEN AND THE CHINESE YUAN IN THE FOREIGN EXCHANGE MARKET A COMPARATIVE ANALYSIS THE US DOLLAR, THE EURO, THE JAPANESE YEN AND THE CHINESE YUAN IN THE FOREIGN EXCHANGE MARKET A COMPARATIVE ANALYSIS ORASTEAN Ramona Lucian Blaga University of Sibiu, Romania Abstract: This paper exposes

More information

Reading: Chapter 19. 7. Swaps

Reading: Chapter 19. 7. Swaps Reading: Chapter 19 Chap. 19. Commodities and Financial Futures 1. The mechanics of investing in futures 2. Leverage 3. Hedging 4. The selection of commodity futures contracts 5. The pricing of futures

More information

Chapter 16: Financial Risk Management

Chapter 16: Financial Risk Management Chapter 16: Financial Risk Management Introduction Overview of Financial Risk Management in Treasury Interest Rate Risk Foreign Exchange (FX) Risk Commodity Price Risk Managing Financial Risk The Benefits

More information

Fixed vs Flexible Exchange Rate Regimes

Fixed vs Flexible Exchange Rate Regimes Fixed vs Flexible Exchange Rate Regimes Review fixed exchange rates and costs vs benefits to devaluations. Exchange rate crises. Flexible exchange rate regimes: Exchange rate volatility. Fixed exchange

More information

General Forex Glossary

General Forex Glossary General Forex Glossary A ADR American Depository Receipt Arbitrage The simultaneous buying and selling of a security at two different prices in two different markets, with the aim of creating profits without

More information

How do central banks manage exchange rates?

How do central banks manage exchange rates? How do central banks manage exchange rates? By P. Samarasiri, Assistant Governor, Central Bank of Sri Lanka Foreign exchange market and management of exchange rate of a country s currency are two key areas

More information

Currency Options and Swaps: Hedging Currency Risk

Currency Options and Swaps: Hedging Currency Risk Currency Options and Swaps: Hedging Currency Risk By Louis Morel ECON 826 International Finance Queen s Economics Department January 23, 2004 Table of Contents 1. Introduction...2 2. Currency risk exposure...2

More information

The Balance of Payments, the Exchange Rate, and Trade

The Balance of Payments, the Exchange Rate, and Trade Balance of Payments The Balance of Payments, the Exchange Rate, and Trade Policy The balance of payments is a country s record of all transactions between its residents and the residents of all foreign

More information

18th Year of Publication. A monthly publication from South Indian Bank. www.sib.co.in

18th Year of Publication. A monthly publication from South Indian Bank. www.sib.co.in To kindle interest in economic affairs... To empower the student community... Open YAccess www.sib.co.in ho2099@sib.co.in A monthly publication from South Indian Bank 18th Year of Publication SIB STUDENTS

More information

Understanding World Currencies and Exchange Rates

Understanding World Currencies and Exchange Rates Understanding World Currencies and Exchange Rates Contents Currencies Exchange Rates Exchange Rate Movements Interpreting Numerical Exchange Rate Movements How Foreign Exchange Markets Work Why Exchange

More information

Macroeconomics, 6e (Abel et al.) Chapter 13 Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy

Macroeconomics, 6e (Abel et al.) Chapter 13 Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy Macroeconomics, 6e (Abel et al.) Chapter 13 Exchange Rates, Business Cycles, and Macroeconomic Policy in the Open Economy 13.1 Exchange Rates 1) The price of one currency in terms of another is called

More information

OPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17)

OPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17) OPTIONS MARKETS AND VALUATIONS (CHAPTERS 16 & 17) WHAT ARE OPTIONS? Derivative securities whose values are derived from the values of the underlying securities. Stock options quotations from WSJ. A call

More information

CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES

CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES CHAPTER 14 BALANCE-OF-PAYMENTS ADJUSTMENTS UNDER FIXED EXCHANGE RATES MULTIPLE-CHOICE QUESTIONS 1. Which of the following does not represent an automatic adjustment in balance-of-payments disequilibrium?

More information

Rutgers University Spring Econ 336 International Balance of Payments Professor Roberto Chang. Problem Set 1. Name:

Rutgers University Spring Econ 336 International Balance of Payments Professor Roberto Chang. Problem Set 1. Name: Rutgers University Spring 2012 Econ 336 International Balance of Payments Professor Roberto Chang Problem Set 1 Name: 1. When the exchange value of the euro rises in terms of the U.S. dollar, U.S. residents

More information

Impact of Treasury s OTC Derivatives Legislation on the Foreign Exchange Market. Corporations participate in the foreign exchange market to:

Impact of Treasury s OTC Derivatives Legislation on the Foreign Exchange Market. Corporations participate in the foreign exchange market to: ISDA International Swaps and Derivatives Association, Inc. 360 Madison Avenue, 16th Floor New York, NY 10017 United States of America Telephone: 1 (212) 901-6000 Facsimile: 1 (212) 901-6001 email: isda@isda.org

More information

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi

University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi University of Lethbridge Department of Economics ECON 1012 Introduction to Macroeconomics Instructor: Michael G. Lanyi CH 25 Exch Rate & BofP 1) Foreign currency is A) the market for foreign exchange.

More information

International Finance

International Finance International Finance CHAPTER34 C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to 1 Describe a country s balance of payments accounts and explain what

More information

A Primer on Exchange Rates and Exporting WASHINGTON STATE UNIVERSITY EXTENSION EM041E

A Primer on Exchange Rates and Exporting WASHINGTON STATE UNIVERSITY EXTENSION EM041E A Primer on Exchange Rates and Exporting WASHINGTON STATE UNIVERSITY EXTENSION EM041E A Primer on Exchange Rates and Exporting By Andrew J. Cassey and Pavan Dhanireddy Abstract Opportunities to begin exporting

More information

Australia's experience with capital flows under different exchange rate regimes:

Australia's experience with capital flows under different exchange rate regimes: Australia's experience with capital flows under different exchange rate regimes: Note for the CGFS Working Group on Capital Flows to Emerging Market Economies Australia's experience with capital flows

More information

Chapter 11. International Economics II: International Finance

Chapter 11. International Economics II: International Finance Chapter 11 International Economics II: International Finance The other major branch of international economics is international monetary economics, also known as international finance. Issues in international

More information

Why a Floating Exchange Rate Regime Makes Sense for Canada

Why a Floating Exchange Rate Regime Makes Sense for Canada Remarks by Gordon Thiessen Governor of the Bank of Canada to the Chambre de commerce du Montréal métropolitain Montreal, Quebec 4 December 2000 Why a Floating Exchange Rate Regime Makes Sense for Canada

More information

Learning Objectives. Chapter 17. Trading Currencies in Foreign Exchange Markets. Trading Currencies in Foreign Exchange Markets (cont.

Learning Objectives. Chapter 17. Trading Currencies in Foreign Exchange Markets. Trading Currencies in Foreign Exchange Markets (cont. Chapter 17 Financing World Trade Learning Objectives Explain how foreign exchange rates are determined. Differentiate between floating and fixed exchange rate systems. Contrast the balance of trade and

More information

Chapter 1.1. The Forex Market

Chapter 1.1. The Forex Market Chapter 1.1 The Forex Market 0 THE FOREX MARKET The Forex market is the largest financial market in the world. Nearly $3.2 trillion worth of foreign currencies trade back and forth across the Forex market

More information

CHAPTER 3 BALANCE OF PAYMENTS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS

CHAPTER 3 BALANCE OF PAYMENTS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS CHAPTER 3 BALANCE OF PAYMENTS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. Define the balance of payments. Answer: The balance of payments (BOP) can be defined

More information

Chapter Outline. Chapter 13. Exchange Rates. Exchange Rates

Chapter Outline. Chapter 13. Exchange Rates. Exchange Rates Chapter 13, Business Cycles, and Macroeconomic Policy in the Open Economy Chapter Outline How Are Determined: A Supply-and-Demand Analysis The IS-LM Model for an Open Economy Macroeconomic Policy in an

More information

CHAPTER 32 EXCHANGE RATES, BALANCE OF PAYMENTS, AND INTERNATIONAL DEBT

CHAPTER 32 EXCHANGE RATES, BALANCE OF PAYMENTS, AND INTERNATIONAL DEBT CHAPTER 32 EXCHANGE RATES, BALANCE OF PAYMENTS, AND INTERNATIONAL DEBT Chapter in a Nutshell Along with the flows of goods and services being traded between countries, there are corresponding flows of

More information

Management & Engineering. Choice of Exchange Rate Regime and Innovation of Risk Management for Commercial Bank s Exchange Rate

Management & Engineering. Choice of Exchange Rate Regime and Innovation of Risk Management for Commercial Bank s Exchange Rate Management & Engineering 19 (2015) 1838-5745 Contents lists available at SEI Management & Engineering journal homepage: www.seiofbluemountain.com Choice of Exchange Rate Regime and Innovation of Risk Management

More information

Answers to Concepts in Review

Answers to Concepts in Review Answers to Concepts in Review 1. Puts and calls are negotiable options issued in bearer form that allow the holder to sell (put) or buy (call) a stipulated amount of a specific security/financial asset,

More information

Chapter 17. Fixed Exchange Rates and Foreign Exchange Intervention. Copyright 2003 Pearson Education, Inc.

Chapter 17. Fixed Exchange Rates and Foreign Exchange Intervention. Copyright 2003 Pearson Education, Inc. Chapter 17 Fixed Exchange Rates and Foreign Exchange Intervention Slide 17-1 Chapter 17 Learning Goals How a central bank must manage monetary policy so as to fix its currency's value in the foreign exchange

More information

Alternative exchange rate Systems: Chapter 3 The International Monetary System. Alternative exchange rate Systems: Alternative Exchange-rate Systems:

Alternative exchange rate Systems: Chapter 3 The International Monetary System. Alternative exchange rate Systems: Alternative Exchange-rate Systems: Chapter 3 The International Monetary System Alternative exchange rate Systems How Market Forces Affect Currency Recent Currency Crises A History of the Monetary System Alternative exchange rate Systems:

More information

The Need for Futures Markets in Currencies Milton Friedman

The Need for Futures Markets in Currencies Milton Friedman The Need for Futures Markets in Currencies Milton Friedman Under the Bretton Woods system, the central banks of the world undertook to keep the exchange rates of their currencies in terms of the dollar

More information

Futures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp.

Futures Investment Series. No. 2. The Mechanics of the Commodity Futures Markets. What They Are and How They Function. Mount Lucas Management Corp. Futures Investment Series S P E C I A L R E P O R T No. 2 The Mechanics of the Commodity Futures Markets What They Are and How They Function Mount Lucas Management Corp. The Mechanics of the Commodity

More information

CHAPTER 8 MANAGEMENT OF TRANSACTION EXPOSURE SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS

CHAPTER 8 MANAGEMENT OF TRANSACTION EXPOSURE SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS CHAPTER 8 MANAGEMENT OF TRANSACTION EXPOSURE SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMS QUESTIONS 1. How would you define transaction exposure? How is it different from economic

More information

CHAPTER 17 MACROECONOMIC POLICY IN AN OPEN ECONOMY

CHAPTER 17 MACROECONOMIC POLICY IN AN OPEN ECONOMY CHAPTER 17 MACROECONOMIC POLICY IN AN OPEN ECONOMY MULTIPLE-CHOICE QUESTIONS 1. A nation experiences internal balance if it achieves: a. Full employment b. Price stability c. Full employment and price

More information

CHAPTER 8 SUGGESTED ANSWERS TO CHAPTER 8 QUESTIONS

CHAPTER 8 SUGGESTED ANSWERS TO CHAPTER 8 QUESTIONS INSTRUCTOR S MANUAL: MULTINATIONAL FINANCIAL MANAGEMENT, 9 TH ED. CHAPTER 8 SUGGESTED ANSWERS TO CHAPTER 8 QUESTIONS. On April, the spot price of the British pound was $.86 and the price of the June futures

More information

Risk Management and Financial Instruments. Cases and Practices

Risk Management and Financial Instruments. Cases and Practices Risk Management and Financial Instruments Cases and Practices Content 1. Decision Case: Zapa Chemical and Buba 2. Delphi s Currency Swap 3. Ikea s Yen Exposure International Financial Management 2 1. Decision

More information

Foreign exchange market developments and intervention in Korea

Foreign exchange market developments and intervention in Korea Foreign exchange market developments and intervention in Korea Sangdai Ryoo, Taeyong Kwon and Hyejin Lee 1 Abstract This paper provides an overview of the developments in the Korean foreign exchange market

More information

Reading assignment: Chapter 2 International Flow of Funds Euro/$ exchange rate and Changing Investment and trade patterns reading set (9 pages)

Reading assignment: Chapter 2 International Flow of Funds Euro/$ exchange rate and Changing Investment and trade patterns reading set (9 pages) MGT 266 Syllabus 1/04/06 International Finance Richard Castanias Course Description: This course focuses on international financial management and international trade. Topics in financial management, viewed

More information

Assignment 11 (Chapter 12)

Assignment 11 (Chapter 12) Assignment 11 (Chapter 12) 1. The relationship between the exchange rate and the prices of tradable goods is known as the: a) Purchasing-power-parity theory b) Asset-markets theory c) Monetary theory d)

More information

LIST OF MAJOR LEADING & LAGGING ECONOMIC INDICATORS

LIST OF MAJOR LEADING & LAGGING ECONOMIC INDICATORS APRIL 2014 LIST OF MAJOR LEADING & LAGGING ECONOMIC INDICATORS Most economists talk about where the economy is headed it s what they do. Paying attention to economic indicators can give you an idea of

More information

INFORMATION ON RISKS IN SECURITIES TRADING

INFORMATION ON RISKS IN SECURITIES TRADING INFORMATION ON RISKS IN SECURITIES TRADING Introduction This notice does not disclose all of the risks and other significant aspects of trading in financial instruments. In light of the risks, Investor

More information

United States current account deficits: A stochastic optimal control analysis 1

United States current account deficits: A stochastic optimal control analysis 1 University Press Scholarship Online You are looking at 1-10 of 19 items for: keywords : current account deficits United States current account deficits: A stochastic optimal control analysis 1 in Stochastic

More information

Practice set #4 and solutions

Practice set #4 and solutions FIN-465 Derivatives (3 credits) Professor Michel Robe Practice set #4 and solutions To help students with the material, seven practice sets with solutions will be handed out. They will not be graded: the

More information

Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs.

Derivative Users Traders of derivatives can be categorized as hedgers, speculators, or arbitrageurs. OPTIONS THEORY Introduction The Financial Manager must be knowledgeable about derivatives in order to manage the price risk inherent in financial transactions. Price risk refers to the possibility of loss

More information

8 Day Intensive Course Lesson 6 Fundamental Analysis -- Who and What Moves the Market

8 Day Intensive Course Lesson 6 Fundamental Analysis -- Who and What Moves the Market 8 Day Intensive Course Lesson 6 Fundamental Analysis -- Who and What Moves the Market A) FX Market Structure FX Market Structure The FX market is an over-the-counter market with no centralized exchange.

More information

Chapter 1.1. The Forex Market

Chapter 1.1. The Forex Market Chapter 1.1 The Forex Market 0 THE FOREX MARKET The Forex market is the largest financial market in the world. Nearly $3.2 trillion worth of foreign currencies trade back and forth across the Forex market

More information

CURRENCY FUTURES IN INDIA WITH SPECIAL REFERENCE TO CURRENCY FUTURES TRADED AT NSE

CURRENCY FUTURES IN INDIA WITH SPECIAL REFERENCE TO CURRENCY FUTURES TRADED AT NSE CURRENCY FUTURES IN INDIA WITH SPECIAL REFERENCE TO CURRENCY FUTURES TRADED AT NSE Vinayak R. Gramopadhye Assistant professor, ASM s Institute of International Business and Research, Pimpri, Pune-18 Abstract

More information

Practice Problems on Exchange Rates

Practice Problems on Exchange Rates Practice Problems on Exchange Rates 1- Define nominal exchange rate and real exchange rate. How are changes in the real exchange rate and the nominal exchange rate related? The nominal exchange rate is

More information

Section 2 Evaluation of current account balance fluctuations

Section 2 Evaluation of current account balance fluctuations Section 2 Evaluation of current account balance fluctuations Key points 1. The Japanese economy and IS balance trends From a macroeconomic perspective, the current account balance weighs the Japanese economy

More information

Web. Chapter International Managerial Finance. Chapter Summary

Web. Chapter International Managerial Finance. Chapter Summary Chapter International Managerial Finance Web T his chapter provides a brief introduction to international finance. Of course, whole courses and even degree programs are offered on this topic. The reason

More information

Chapter 9. Forecasting Exchange Rates. Lecture Outline. Why Firms Forecast Exchange Rates

Chapter 9. Forecasting Exchange Rates. Lecture Outline. Why Firms Forecast Exchange Rates Chapter 9 Forecasting Exchange Rates Lecture Outline Why Firms Forecast Exchange Rates Forecasting Techniques Technical Forecasting Fundamental Forecasting Market-Based Forecasting Mixed Forecasting Forecasting

More information

Chapter 1.1. The Forex Market

Chapter 1.1. The Forex Market Chapter 1.1 The Forex Market 0 THE FOREX MARKET The Forex market is the largest financial market in the world. Nearly $3.2 trillion worth of foreign currencies trade back and forth across the Forex market

More information

Exchange Rate Policy in the Policy Analysis Matrix

Exchange Rate Policy in the Policy Analysis Matrix Slide 1 Exchange Rate Policy in the Policy Analysis Matrix Scott Pearson Stanford University Lecture Program Scott Pearson is Professor of Agricultural Economics at the Food Research Institute, Stanford

More information

CHAPTER 10 INTERNATIONAL MONETARY SYSTEM

CHAPTER 10 INTERNATIONAL MONETARY SYSTEM CHAPTER 10 INTERNATIONAL MONETARY SYSTEM LEARNING OBJECTIVES: 1. Explain how exchange rates influence the activities of domestic and international companies. 2. Identify the factors that help determine

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. Study Questions 6 (Foreign Exchange Markets) MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The currency used to buy imported goods is 1) A) the

More information

ANSWERS TO END-OF-CHAPTER PROBLEMS WITHOUT ASTERISKS

ANSWERS TO END-OF-CHAPTER PROBLEMS WITHOUT ASTERISKS Part III Answers to End-of-Chapter Problems 97 CHAPTER 1 ANSWERS TO END-OF-CHAPTER PROBLEMS WITHOUT ASTERISKS Why Study Money, Banking, and Financial Markets? 7. The basic activity of banks is to accept

More information

Big Concepts. Balance of Payments Accounts. Financing International Trade. Economics 202 Principles Of Macroeconomics. Lecture 12

Big Concepts. Balance of Payments Accounts. Financing International Trade. Economics 202 Principles Of Macroeconomics. Lecture 12 Economics 202 Principles Of Macroeconomics Professor Yamin Ahmad Big Concepts Balance of Payments Equilibrium The relationship between the current account, capital account and official settlements balance

More information

Product Disclosure Statement

Product Disclosure Statement Product Disclosure Statement Sumo Forex Limited Level 4, 228 Queen Street, Auckland, 1010, New Zealand Tel: +6498871044 Email: support@sumoforex.com 1. Important Information and Disclaimer 1.1 Financial

More information

FIN 683 Financial Institutions Management Foreign-Currency Risk

FIN 683 Financial Institutions Management Foreign-Currency Risk FIN 683 Financial Institutions Management Foreign-Currency Risk Professor Robert B.H. Hauswald Kogod School of Business, AU Global Banks Globalization of financial markets has increased foreign exposure

More information

Changes to China s Renminbi Exchange Rate. Wednesday, August 12, 2015

Changes to China s Renminbi Exchange Rate. Wednesday, August 12, 2015 Changes to China s Renminbi Exchange Rate Wednesday, August 12, 2015 WHAT HAVE CHINESE POLICY MAKERS DONE IN REGARD TO SETTING THEIR EXCHANGE RATE? Each day at 9.15am in Beijing the People s Bank of China

More information

Chapter 17. Preview. Introduction. Fixed Exchange Rates and Foreign Exchange Intervention

Chapter 17. Preview. Introduction. Fixed Exchange Rates and Foreign Exchange Intervention Chapter 17 Fixed Exchange Rates and Foreign Exchange Intervention Slides prepared by Thomas Bishop Copyright 2009 Pearson Addison-Wesley. All rights reserved. Preview Balance sheets of central banks Intervention

More information

(1.1) (7.3) $250m 6.05% US$ Guaranteed notes 2014 (164.5) Bank and other loans. (0.9) (1.2) Interest accrual

(1.1) (7.3) $250m 6.05% US$ Guaranteed notes 2014 (164.5) Bank and other loans. (0.9) (1.2) Interest accrual 17 Financial assets Available for sale financial assets include 111.1m (2013: 83.0m) UK government bonds. This investment forms part of the deficit-funding plan agreed with the trustee of one of the principal

More information

Midterm Exam I: Answer Sheet

Midterm Exam I: Answer Sheet Econ 434 Professor Ickes Fall 2001 Midterm Exam I: Answer Sheet 1. (20%) Suppose that I have a short position in yen and I wish to hedge my currency risk over the next three months. Carefully explain how

More information

The International Monetary System. Jiawen Yang

The International Monetary System. Jiawen Yang The International Monetary System Jiawen Yang As Samuelson and Nordhaus point out, while the simple supply-and-demand diagrams for the foreign exchange market explain the major determinants, they do not

More information

Evolution of Forex the Active Trader s Market

Evolution of Forex the Active Trader s Market Evolution of Forex the Active Trader s Market The practice of trading currencies online has increased threefold from 2002 to 2005, and the growth curve is expected to continue. Forex, an abbreviation for

More information

CME Options on Futures

CME Options on Futures CME Education Series CME Options on Futures The Basics Table of Contents SECTION PAGE 1 VOCABULARY 2 2 PRICING FUNDAMENTALS 4 3 ARITHMETIC 6 4 IMPORTANT CONCEPTS 8 5 BASIC STRATEGIES 9 6 REVIEW QUESTIONS

More information

2.5 Monetary policy: Interest rates

2.5 Monetary policy: Interest rates 2.5 Monetary policy: Interest rates Learning Outcomes Describe the role of central banks as regulators of commercial banks and bankers to governments. Explain that central banks are usually made responsible

More information

Bank of Finland and Finland s economic internationalization. Turku 16.08.2011

Bank of Finland and Finland s economic internationalization. Turku 16.08.2011 Bank of Finland and Finland s economic internationalization Antti Kuusterä Juha Tarkka Turku 16.08.2011 Early history - towards independent exchange rate policy Monetary reform 1840 - silver standard stabilized

More information

FINA 5331 Exam #1. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

FINA 5331 Exam #1. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. FINA 5331 Exam #1 Name MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) During business cycle expansions when income and wealth are rising, the

More information

FIXED VERSUS FLOATING EXCHANGE RATES Peter B. Kenen

FIXED VERSUS FLOATING EXCHANGE RATES Peter B. Kenen Peter B. Kenen In the 1990s, a new consensus emerged regarding exchange rate regimes. Governments must choose between flexible exchange rates and firmly fixed exchange rates. Pegged rates of the adjustable

More information

Currency Regimes in Poland During European Integration Process

Currency Regimes in Poland During European Integration Process Currency Regimes in Poland During European Integration Process Eugeniusz Mizerski Abstract The article analyses the currency regime in Poland during the transition process. The analysis starts with the

More information

An overview of FX Exposure Risk: Assessment and Management

An overview of FX Exposure Risk: Assessment and Management An overview of FX Exposure Risk: Assessment and Management June 2015 1. Introduction This report presents an overview of various types of foreign currency exposure, their impact on the financial statements,

More information

Introduction to International Finance

Introduction to International Finance Introduction to International Finance Barry W. Ickes Econ 434 Fall 2008 1. Introduction International macroeconomics (or international finance) as a subject covers many topical issues. What has happened

More information

Managing Foreign Exchange Risk

Managing Foreign Exchange Risk Managing Foreign Exchange Risk As evidenced in recent years, the value of the Canadian dollar is unpredictable over time. The profitability of exporters and importers has taken a hit from the loonie s

More information

Fixed Exchange Rates and Exchange Market Intervention. Chapter 18

Fixed Exchange Rates and Exchange Market Intervention. Chapter 18 Fixed Exchange Rates and Exchange Market Intervention Chapter 18 1. Central bank intervention in the foreign exchange market 2. Stabilization under xed exchange rates 3. Exchange rate crises 4. Sterilized

More information

General Risk Disclosure

General Risk Disclosure General Risk Disclosure Colmex Pro Ltd (hereinafter called the Company ) is an Investment Firm regulated by the Cyprus Securities and Exchange Commission (license number 123/10). This notice is provided

More information