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Question
Use the graph below to answer questions 9 12.
Figure 1.1
Refer to Figure 1.1. Suppose that the market for British pound is initially in equilibrium at point A with the exchange rate $2.00 per pound. Then the demand curve shifts to D2. If the British central bank wants to fix the exchange rate at $2.00/pound, they have to:
a. buy pound and sell dollar by the amount of Q3 Q1.
b. sell pound and buy dollar by the amount of Q3 Q1.
c. sell only pound by the amount of Q3 Q1 and leave dollar alone.
d. buy only pound by the amount of Q3 Q1 and leave dollar alone.
Answer
This answer is hidden. It contains 91 characters.
Related questions
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Risk premium equals to:a. expected premium minus forward premium.b. expected premium plus forward premium.c. forward premium minus expected premium.d. exchange rate premium plus forward premium.
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If a bicycle costs $200 in the U.S. and 50 Swedish kronor in Sweden and the exchange rate is 0.25 Swedish krona per dollar, then the Swedish krona is:
a. Correctly valued according to PPP.
b. Undervalued relative to PPP.
c. Overvalued relative to PPP.
d. Not enough information to find answer.
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If prices in the U.K. are rising slower than prices in the U.S. then
a. The pound depreciates.
b. The exchange rate stays the same.
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The equivalence of the exchange rate to the ratio of price levels between two countries is referred to as the:
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Starting from a position where a countrys money demand equals the money supply and its balance of payments is in equilibrium. According to the monetary approach, an expansionary monetary policy will lead to a(n) ______ of the home currency under flexible exchange rate regime; whereas it will cause trade _______ under fixed exchange rate.
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Under the flexible exchange rate regime, which of the following variables in the monetary approach becomes zero and is dropped out of the equation?
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According to the monetary approach to the balance of payments, which of the following economic events would help a country to resolve its balance of trade deficit?
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Considering the internal balance in an economy, which of the following could lead to lower interest rate and higher income?
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c. The maximization of shareholder wealth.
d. The maximization of social benefits to the host country through knowledge spillover effects.
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In foreign exchange forecasting, what is a good forecast?
a. When the forecast encourages the firm to buy.
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c. When the forecast is high.
d. When the forecast predicts the right hedging strategy.
Q:
Suppose for two currencies the forward premium is 8.5% and the expected premium is 5%. Then the risk premium is:
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Q:
Suppose that the 1-year forward rate of dollar per pound is $1.32, the current spot rate ($/pound) is $1.20, and the expected future spot rate ($/pound) is $1.40. The expected premium on the pound is:
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Information exposure is a type of foreign exchange risk.
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Suppose for two currencies the forward premium is 4% and the expected premium is 8%. Then the risk premium is:
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A U.S. firm has a 1 million payment due to a Dutch firm in 90 days. The current spot rate is $1.00 per euro, and the 90-day forward rate is $1.11. Ben forecasts that the spot rate in 90 days will be $0.99. Jerry forecasts that the spot rate will be $1.12 in 90 days. The actual spot rate in 90 days turns out to be $1.10. Whose advice, between Ben and Jerry, will save the companys money?
a. Ben
b. Jerry
c. Both Ben and Jerry
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Suppose that the 1-year forward rate of dollar per Swiss franc is $0.42, the current spot rate ($/SFr) is $0.40, and the expected future spot rate ($/SFr) is $0.45. The forward premium equals to:
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b. 5%
c. 6.67%
d. 12.5%