Assignment 1

As most observers took it for granted that the yuan was undervalued, one specific study estimated yuan undervaluation against the U.S. dollar of at least 35% based on the price level of goods and services in China compared with those of its trade partners. As a result, there will probably be a sharp appreciation of renminbi if Chinese government switches over from the fixed exchange rate policy to flexible exchange rate policy. A common figure cited for a 20 to 25 percent move of renminbi would be devastating to China, which would cause deflation, cut economic growth, cut off foreign direct investment and would destabilize Asia. On the other hand, other low-cost countries in Asia may benefit from the shift of FDI and production of multinational companies. However, most high-wage countries like U.S. may still face a rising trade deficit because their imports from other low-wage countries would replace products made in China.

academic year interest rate of 3.76 percent would pay a 5,032 dollars interest over 10 years,

If an arbitrageur can borrow up to $1,000,000 (or CD1,250,000), formulate a covered interest arbitrage. Make sure to explain your steps in detail (just writing out three random calculations does not count). Determine the

China, the largest growing market in the world, currently has a policy regarding monetary regulation that allows the Yuan to “float”. This has seen the Yuan appreciate by approximately 24% over the past few years. Today, the exchange rate between the Chinese Yuan and the American Dollar is approximately 6.3 Yuan to 1 Dollar. Some argue that China should revalue the Yuan again the dollar, establishing a more fixed exchange rate. Others believe that current should allow

The strongest argument in favor of a floating exchange rate regime is that it retains the flexibility to use monetary policy to focus on domestic considerations. In contrast, a hard exchange rate peg leaves very narrow scope for domestic monetary policy, because

If the interest rate is 8% per annum, how long will it take to double your money?

1. Suppose the CFO of an American corporation with surplus cash flow had $100 million to invest last July 15 and the corporation did not believe it would need to utilize these funds to retool or expand production capacity for 1 year. Suppose further that the interest rate on 1 year CD deposits in US banks was .5%, while the rate on 1 year CD deposits in England (denominated in British Pounds) was 2% at the time. Suppose further that the exchange rate at that time was $1.68 per British pound .

Examine the connection and the differences between the official exchange rate market controlled by the CADIVI and the permuta. Discuss the states of equilibrium in each of these markets. Central banks intervene in foreign exchange markets in order to achieve a variety of overall economic objectives, such as controlling inflation, maintaining competitiveness or maintaining financial stability. The precise objectives of policy and how they are reflected in foreign exchange market intervention depend on a number of factors, including the stage of a country‟s development, the degree of financial market development and integration, and a country‟s overall vulnerability to shocks. The precise definition of which operations in forex markets

1-year note payable in exchange. Assuming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if the sale was made on June 30? PxRxT 1yr 80,000 x 10% = 8,000 x 6/12 = $4,000

The global economy has expanded exponentially since the beginning of the 20th century. A very important issue that has come to develop in the last thirty years is the global economy more or less abandoned a fixed currency system and using the modern floating currency/exchange model in an attempt to regulate markets in the newly developed foreign market economy. But what effects, both positive and negative have there been in the adoption of a floating model compared to a fixed model? Is the global economy better off or worse off by this implementation? To really be able to analyze the issue it is important to know the background of this switch from a fixed to floating currency system, who are the

One of the weaknesses exposed by the crisis was the underdevelopment of capital markets within the region. The Hong Kong government, to strengthen the operations and supervision of local securities market , provided the stock exchange’s settlement system to enable the settlement of securities denominated in other major currencies . This encouraged the listing of Japanese and European bonds.

Ben Holt has obtained several forward contract quotations for the Thai baht to determine whether covered interest arbitrage may be possible. He was quoted a forward rate of £0.015 per Thai baht for a 90-day forward contract. The current spot rate is £0.0151. Ninety-day interest rates available to Blades in the United

Step 2: Invest the proceeds, (¥106,000,000), in a euroyen account for six months, earning 4% per annum, or 2% for 180 days.

Theoretically speaking there are three main types of exchange rates. The first type of exchange rate is the floating exchange rate. According to Sloman (2015, p. 457) a floating exchange rate system can be defined as “When the government does not intervene in the foreign exchange markets, but simply allows the exchange rate to be freely determined by demand and supply”. The second type of exchange rate is the fixed exchange rate whereby the government fixes its currency to that of another currency. Most countries which have a fixed exchange rate system usually fix their currency to the US dollar. The Chinese currency can be said to be a “managed floating exchange rate regime” (Spence.,2015) which

In the next section, we will detail the advantages and disadvantages of floating and fixed exchange rate regimes. The possible exchange rate regimes are on a flexibility continuum of exchange rate regimes which Frankel (1999) describes in nine categories from the most rigid (the currency union) to the least (the clean float):