Business & Finance homework help

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Business & Finance homework help. Question 1: If the direct exchange rate of the euro is $1.25, what is the euro’s indirect exchange rate? That is, what is the value of a dollar in euros?
 
Question 2: Assume Poland’s currency (the zloty) is worth $.17 and the Japanese yen is worth $.008.  What is the cross rate of the zloty with respect to yen?  That is, how many yen equal a zloty?
 
Question 3: Every month, the U.S. trade deficit figures are announced.  Foreign exchange traders often react to this announcement and even attempt to forecast the figures before they are announced.
 

  1. Why do you think the trade deficit announcement sometimes has such an impact on foreign exchange trading?

 

  1. In some periods, foreign exchange traders do not respond to a trade deficit announcement, even when the announced deficit is very large.  Offer an explanation for such a lack of response.

 
Question 4: Explain why the value of the British pound against the dollar will not always move in tandem with the value of the euro against the dollar.
 
Question 5: In some periods, Brazil’s inflation rate was very high.  Explain why this places pressure on the Brazilian currency (called the Brazilian real).
 
Question 6: Choose Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $.16 to $.14 in 10 days.  The following interbank lending and borrowing rates exist:
 
Lending Rate         Borrowing Rate
U.S. dollar                      7.0%                        8.3%
Mexican peso                  7.5%                        8.7%
 
Assume that Choose Bank has a borrowing capacity of either $10 million or 70 million peos in the interbank market, depending on which currency it wants to borrow.
 
How could Choose Bank attempt to capitalize on its expectations without using deposited funds?  Estimate the profits that could be generated from this strategy.
 

Business & Finance homework help