International Finance Mcq

1.3. In order to estimate the peso discount rate, assume that the International Fisher Effect (IFE) holds. Groupe Ariel's Euro hurdle rate for a project of this type was 8%. Assume that inflation rates are expected to be 7% in Mexico and 3% in France.

English pound rate Rate = Japanese yen rate Rate = French Rate Rate = 0 . 0 US Value = Rate*Int_Value End English

Currency exchange rates can be categorised as floating, in which case they constantly change based on a number of factors, or they can subsequently be fixed to another currency, where they still float, but they additionally move in conjunction with the currency to which they are pegged. Floating rates are a reflection of market movement, demonstrating the principles of both demand and supply, as well as limit imbalances in the international financial system. Fixed exchange rates are predominantly used by developing countries as they are preferred for their greater stability. They grant further control to central banks to set currency values, and are often used to evade market abuse. (MacEachern, A. 2008; Simmons, P.

2) Interest rate parity (how exchange rate is determined by the flows of capital) and

If the spot exchange rate that shows in market is AUD 0.65 per EUR , then IKEA would earn EUR 650,000 in the next half year if they predict that will be same after 180 days but the currencies is fluctuate by following the market performance so that there would not be the same exchange rate in the future. If the exchange rate of AUD to EUR is increase to AUD 0.69 per EUR in the next half year which means that the AUD depreciate or EUR is appreciate. IKEA will earn EUR 690,000 at that time and have a foreign exchange gain of EUR 40,000. The situation will vice versa if the exchange rate decrease to AUD 0.62 in the next half year. This means that either the AUD is appreciate or the EUR is depreciate at that time. IKEA will earn EUR 620,000 at that time and have a foreign exchange loss of EUR 30,000 as the revenue is lesser compare with the exchange rate they

Forward rate = Spot rate x (1 + X interest rate) / (1 + Y interest rate)

Changes in exchange rates are the result of changes in demand and supply factors for goods and services, such as changes in tastes, relative incomes, and relative prices. Under a flexible-rate policy, all domestic prices are linked with foreign prices. Any change in the exchange rate automatically alters the prices of all foreign goods to domestic goods. The price change alters the relative attractiveness of imports and exports and maintains equilibrium in each trading partner's balance of

1.025 0.79  1.04 0.80 0.9856 ≠ 0.9875 IRP does not hold. 2.5< (4-1.25=2.75) Therefore, funds flow from US to Canada.

Foreign exchange rates are best described as simply the price of a country’s money expressed in another country’s money. In simple words, it is the rate at which a currency can be swapped for another. An example of determining foreign exchange rates is by substituting goods for currencies. Another example is the yuan-dollar exchange will depend on how well the demand and supply moves. When the demand for dollars in China climbs and supply does not go up correspondingly, each dollar will cost more yuan to buy. (Colander, 2010)

Stanek, M. B. (2002). A review of exchange rate policies and their effect upon nations and

We observe appreciation within the Australian rate of exchange once an increase in commodity prices occurs and an improvement in Australia's terms of trade. In 2008, we observed commodity value indexes collapse, leading in successively to sharp decreases within the Australian dollar. As commodity costs have surged once more, this has caused farther appreciation of the Australian dollar. Lower inflation in Australia is another catalyst for appreciation of the currency. Over the years, an accrued demand for Australia's exported product and services has been indicative of Appreciation. As a significant exporter of natural products, Australia's terms of trade and future (long term) export performance are powerfully influenced by the costs of these products. With these costs currently over thrice their value held at the beginning of the resources boom in 2003, this has provoked speculative investment within the Australian dollar. When there are expectations prevalent, that the currency will appreciate based on speculation of the other changes in the domestic and global economy, we are sure to see this causing an actual appreciation in the Australian currency. Additionally Depreciation can be a consequence of a decrease in Australian interest rates or increase in overseas interest rates. Depreciation will occur when there is deterioration in investment opportunities in Australia or

Consequences regarding the international businesses and the flow of trade and investment among the three countries are given below as benefits and drawbacks of holding fixed exchange rate system-

| • Earn interest return from USD deposits: = 60,018,756 × 0.01652 = 495,155• Withdraw all USD deposits with interest: = 60,018,756 + 495,155 = 60,513,911•

4.17 The direct spot quote for the Canadian dollar is $.76 and the 180-day forward rate is $.74. The difference between the two rates is likely to mean that

Mesa believes international capital flows shift in response to changing interest rate differentials. Is there any reason why the changing interest rate differentials in this example will not necessarily cause international capital flows to change significantly? Explain.