Exam 11: Foreign Exchange

A U.S. investor's extra rate of return on an investment in France, as compared to the United States, equals the interest-rate differential adjusted for any change in the dollar/franc exchange rate.

The supply schedule of yen has a positive-sloping region which corresponds to the inelastic region on the Japanese demand schedule for foreign currency.

A U.S. export company scheduled to receive 1 million pounds six months from today can hedge its foreign exchange risk by:

Given an upward-sloping supply schedule of pounds and a downward-sloping demand schedule for pounds, a decrease in the demand schedule causes an appreciation of the dollar against the pound.

Figure 11.3 The Market for the Euro -Refer to Figure 11.3. If the supply curve is represented by S₀, the equilibrium exchange rate is

Suppose researchers discover that Swiss beer causes cancer when given in large amounts to British mice. This finding would likely result in a (an):

Given the foreign currency market for the Swiss franc, the supply of francs slopes upward, because as the dollar price of the franc rises:

A commercial bank profits from foreign-exchange trading when its bid rate exceeds its offer rate.

Table 11.2. Supply and Demand of British Pounds Quantity Dollars Quantity of Pounds per of Pounds Supplied Pound Demanded 1,000 2.00 200 800 1.80 400 600 1.60 600 400 1.40 800 200 1.20 1,000 -Refer to Table 11.2. The equilibrium exchange rate equals:

Table 11.1 gives the exchange rate quotations for the U.S. dollar and the British pound. Table 11.1. Foreign Exchange Quotations U.S. Dollar Currency Per Equivalent U.S. Dollar Britain (Pound) 1.4270 1.4390 .7008 .6949 30-day Forward 1.4211 1.4333 .7037 .6977 60-day Forward 1.4090 1.4220 .7097 .7032 180-day Forward 1.3930 1.4070 .7179 .7107 -Consider Table 11.1. If one were to buy pounds for immediate delivery, on Tuesday the dollar cost of each pound would be:

The figure below illustrates the market for Swiss francs in a world of market-determined exchange rates. Assume the equilibrium exchange rate is $0.5 per franc, given by the intersection of schedules S₀ and D₀. Figure 11.2. Market for Francs -Refer to Figure 11.2. A shift in the demand for francs from D₀ to D₂, or a shift in the supply of francs from S₀ to S₁, would result in a (an):

Exhibit 11.1 Assume the following: (1) the interest rate on 6-month treasury bills is 8 percent per annum in the United Kingdom and 4 percent per annum in the United States; (2) today's spot price of the pound is $1.50 while the 6-month forward price of the pound is $1.485. -Refer to Exhibit 11.1. If U.S. investors cover their exchange rate risk, the extra return for the 6 months on the U.K. treasury bills is:

Grain shortages in countries that buy large amounts of grain from the United States would increase the demand for American grain and:

What foreign exchange transactions do banks typically engage in?

In a supply-and-demand diagram for Japanese yen, with the exchange rate in dollars per yen on the vertical axis, the demand schedule for yen is drawn sloping:

If Canadian speculators believed the Swiss franc was going to appreciate against the U.S. dollar, they would:

A depreciation of the dollar refers to:

Assume you are an American exporter and expect to receive 50 pounds sterling at the end of 60 days. You can remove the risk of loss due to a devaluation of the pound sterling by:

If a Citibank dealer expects the Swiss franc to appreciate against the U.S. dollar, she will attempt to lower both bid and offer rates for the franc, attempting to persuade other dealers to buy francs from Citibank and dissuade other dealers from selling francs to Citibank.

The supply of foreign currency may be: