Eco201Pricniples of Macroeconomics Final Exam

Decent Essays

ECO201Pricniples of Macroeconomics FINAL EXAM
Click Link Below To Buy: 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 .
A) Suppose that now a year later the exchange rate is $1.55 per US pound. What rate of return …show more content…

Clearly label axes and the current position of AS, & AD relative to full employment RGDP….also indicate any shifts that would occur if the exchange rate of the $ rose sharply against other major currencies 5. Current annualized yields on 1 year US treasury securities are only .28%....while current annualized yields on 2 year US treasury securities are .69% (note you may assume that both 1 and 2 year securities in this example are “0” coupon securities with no payment other than the maturity value on the maturity date.

What does this data suggest about financial market expectations of 1 year yields, 1 year from now? Explain…. (Assume investors are risk neutral in these short time horizons with default free treasuries.)

6. Here’s a quote from Fed head Janet Yellen on at a meeting in Cleveland on July 10 this year. (see then click news and events…
Regarding inflation, as I mentioned earlier, the recent effects of lower prices for crude oil and for imports on overall inflation are expected to wane during this year. Combined with further tightening in labor and product markets, I expect inflation will move toward the FOMC's 2 percent objective over the next few years. Importantly, a number of different surveys indicate that longer-term inflation expectations have remained stable even as recent readings on inflation have fallen. If inflation expectations had not remained stable, I would be more concerned

Get Access