An American firm that buys foreign exchange because its managers expect the dollar to depreciate is A) increasing the supply of foreign exchange. B) increasing the demand for foreign exchange. C) speculating. D) Both A and B. E) Both B and C. ANSWER E
Date: September 10th, 2020
Analyze the following statement “the global financial crisis of 2008-2009 was a great illustration of how interdependent national economies are.” What will be an ideal response? ANSWER True. The global financial crisis that started in 2008, although commonly blamed on the U.S. quickly spread to all economies in the world. Although overt global policy […]
Date: September 10th, 2020
Latin American economies have become relatively more closed to international trade since 1985. Indicate whether the statement is true or false ANSWER FALSE
Date: September 10th, 2020
Intraindustry trade is most common in the trade patterns of A) developing countries of Asia and Africa. B) developed countries of Western Europe. C) all countries. D) None of the above. ANSWER B
Date: September 10th, 2020
What is the expected dollar rate of return on euro deposits if today’s exchange rate is $1.10 per euro, next year’s expected exchange rate is $1.166 per euro, the dollar interest rate is 10%, and the euro interest rate is 5%? A) 10% B) 11% C) -1% D) 0% E) 15% ANSWER B
Date: September 10th, 2020
Describe and explain the relationship between expected inflation rates in two countries and their interest rate differential according to the PPP theory. What will be an ideal response? ANSWER Expected inflation is given by the following equation: Πe = (Pe – P)/P where Pe is the expected price level in a country a year […]
Date: September 10th, 2020
Explain the purpose of the following figure. What will be an ideal response? ANSWER To show that spot and forward exchange rates are in general close to each other.
Date: September 10th, 2020
Working conditions for clothing workers in Bangladesh are very poor. If countries refuse to buy clothing from Bangladesh in order to encourage change, the effect is likely to be that A) firms will be forced to comply and workers will be better off. B) firms will refuse to comply, but workers will be better off. […]
Date: September 10th, 2020
The Baker Plan for addressing the debt crisis was based on the assumption that A) most countries would eventually default on their debt. B) forgiveness of some of the debt was inevitable. C) renewed lending by U.S. and European banks would undermine push for economic reforms. D) hyperinflation would eventually reduce the real value of […]
Date: September 10th, 2020
Explain risk and liquidity of assets. What will be an ideal response? ANSWER Risk is the variability an asset contributes to a savers’ wealth. An asset’s real return can be unpredictable and savers dislike this uncertainty if the return fluctuates widely. Liquidity refers to the ease with which an asset can be sold or […]
Date: September 10th, 2020
