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- If the U.S. dollar appreciates, an MNC's _____. A. U.S. sales will probably decrease B. exports denominated in U.S. dollars will probably increase C. exports denominated in foreign currencies will probably increase D. interest owed on foreign funds borrowed will probably increaseIf the United States imports more goods from abroad than it exports, thenforeigners will tend to have a surplus of U.S. dollars. What will this do tothe value of the dollar with respect to foreign currencies? What is the corresponding effect on foreign investments in the United States?Given the interest rates in the U.S. and Canada are similar, if the Canadian dollar is expected to appreciate against the U.S. dollar, banks are most likely speculating on this anticipated exchange rate movement by borrowing ____ and investing in ____. A. dollars; Canadian dollar B. Canadian dollar; dollars C. Canadian dollar; Canadian dollar D. dollars; dollars
- If US dollars gets lower interest rates in the United States. How would this affect a fundamental forecast of foreign currencies? How would this affect the forward rate forecast of foreign currencies?If the U.S. interest rate is higher than the U.K. interest rate, will the U.K. investors place short-term funds in the U.S.? Explain. Assume the investment is covered. If the rate of inflation in the European Union (EU) is above the rate of inflation in the U.S., by 4 percentage points and the dollar depreciates against the euro by 5% during the same time period, what is expected to happen to the real exchange rate? The e exchange rate is defined as the dollar price of euro($/€).If a central bank decreases interest rates, then gradually: a. the country's gross domestic product is likely to decrease. b. foreign exchange rate is likely to appreciate. c. demand for exported goods and services is likely to increase. d. flows of investment funds into the country are likely to decrease.
- If a country experiences an increase in interest rates relative to U.S. interest rates, the inflow of U.S. funds to purchase its securities should ____, the outflow of its funds to purchase U.S. securities should ____, and there is ____ pressure on its currency's equilibrium value. * A) increase; decrease; downward. B) decrease; increase; upward. C) increase; decrease; upward. D) decrease; increase; downward.Suppose the current exchange rate between the US dollar (USD) and the euro (EUR) is 1 USD = 0.85 EUR. Additionally, assume that the expected rate of return on US assets is 8% and the purchasing price of a US asset is $ 100. Calculate the expected rate of return on this US asset in terms of euros. [5] How does the ability of international investors to quickly and easily switch between domestic and foreign assets impact the relationship between exchange rates and asset prices, particularly in terms of expected rates of return?Recently the US Dollar has been gaining strength against the EURO. This is good news for US companies that export items to Europe and are paid in EUROS. O True O False
- The next two questions are based on the following information Consider the following prices in the international money markets: Spot rate: USD1.275/GBP One-year Forward rate: USD1.364/GBP Interest Rate (UK): 2.39% Interest Rate (US): 11.66% Assuming no transaction costs, which of the following statements is true? An arbitrage can be obtained by borrowing in the currency that is expressing the other currency. An arbitrage can be obtained by investing in the currency that is expressing the other currency. An arbitrage can be obtained by borrowing in the currency that is being expressed by the other currency. O d. An arbitrage cannot be obtained by investing in the currency that is being expressed by the other currency. O e. None of the option in this question are correct. O a. O b. O c. What should the forward rate be for the International Fisher Effect to hold? GBP1.4875/USD GBP1.3904/USD USD1.3904/GBP d. USD1.4875/GBP O e. None of the options in this question. a. O b. OcRelative inflation rates affect interest rates, exchange rates, the overall economic health of a country, and the operations and profitability of multinational companies. Consider the following statement: If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be multiplied when the lending country's currency appreciates. Based on your understanding of the relationship between relative inflation rates and exchange rates, identify whether the preceding statement is valid or invalid. The statement is invalid, because as the currency of the lending country appreciates, it becomes more expensive for the borrowing company to repay the initial loan. The statement is valid, because as the currency of the lending country appreciates, it becomes cheaper to repay the initial loan and thus increase savings. If companies borrow from countries with low interest rates, the potential gains from the interest savings will likely be by the…Which of the following is an example of economic exposure but not an example of transaction exposure? A. A decrease in the Swiss franc's value decreases the dollar value of interest payments on a Swiss deposit sent to a U.S. firm by a Swiss bank. B. An increase in the pound's value increases the U.S. firm's cost of British pound payables. C. A decrease in the peso's value decreases a U.S. firm's dollar value of peso receivables. D. An increase in the dollar's value hurts a U.S. firm's domestic sales because foreign competitors are able to increase their sales to U.S. customers.
