Strength And Limitations Of The International Catcher Theory

determined by the flows of goods and the determinants of exchange rate in the long

Page 3: Introduction to the Financial System Page 7: Commercial Banks Page 12: The Share Market and the Corporation Page 15: Corporations Issuing Equity into the Share Market Page 19: Investors in the Share Market Page 24: Short-term Debt Page 28: Medium- to Long-term Debt Page 32: Interest Rate Determination and Forecasting Page 37: The Foreign Exchange Market Page 40: Factors that Influence the Exchange Rate Page 42: Futures Contracts and Forward Rate Agreements Page 47: Options

In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will

This paper aims to compare the Japanese Yen against the US Dollar over a five year period starting from 2005 till 2010. The exchange traded fund for Japanese Yen shall also be discussed in the paper and afterwards an analysis of both the currencies shall be presented. There are different factors that influence the exchange rate differences between any two chosen currencies. The effects produced by these different exchange rates can be of quite different intensity. The most common elements that have an impact on exchange rate difference include economic factors, socio political factors and other behavioral or technical factors also. The macroeconomic factors such as growth of a country, employment rate, gross domestic product etc. All

Nations trade with one another because it is mutually advantageous for both parties when one is more efficient at producing a certain good and at a lower cost, and the other is proficient at producing a different good or service more efficiently. This is based on Ricaro’s theory of comparative advantage.

Official interest rate changes will also influence asset prices. For example, bond prices are inversely influenced by long-term interest rates. Finally, the official interest rate will also affect the exchange rate which the paper defines as “the relative price of domestic and foreign money” (George et. al, n.d.). When the official interest rate rises, domestic currency (the GBP) will see appreciation making investors want to invest in pounds. Another key point is that with changes in the exchange rate, there will also be a change in the value of domestic and foreign exports and imports. Finally, a change in the official interest rate can also affect people’s expectations and confidence in the economy. For example, some may believe that an increase in interest rates is a signal that the MPC thinks that the economy is expanding thus making further growth likely or, a contradictory interpretation may be that the MPC thinks that the MPC may need to slow growth in order to control inflation (George, n.d).

During the second half of 1997, currencies and stock market prices plunged in value across Southeast Asia, beginning in

・Obtain a List of foreign currency rates from the market and compare it to the rates that were applied for a sample of purchase transactions of that period

The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will over a long period of time

With Canada’s economy growing in every direction, we see a lot of new changes done by the Bank of Canada; which can have vast affects on the economy and our standard of living. In this analysis I look at three variables: the Bank Rates, Consumer Price Index (CPI), and Foreign Exchange Rates. Before I get into the actual data I’d like to give a brief description on how each variable affect each other. As we know interest rate and inflation have a negative relationship, meaning as one increase the other decreases. The Bank of Canada tend to increase interest rates if they see that inflation is starting to increase so they increase interest rates to reduce the inflation rate and vice versa. However for exchange rates and interest rates the

36. In the short run, an increase in government spending will cause the nominal interest rate to:

________ states that differential rates of inflation between two countries tend to be offset over time by an equal but opposite change in the spot exchange rate.

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-

International Financial Management Trial Exam Closed Book Examination INCLUDEPICTURE uvafileserverjligter1DataOnderwijsInternational Financeif2008sbriederLocal SettingsTempRarDI04.890ABS-logo.gif MERGEFORMAT Closed Book Examination Answer as brief and concise as possible redundant or superfluous remarks may lead to a lower score. The maximum score per problem is given between parentheses. The maximum score of the whole exam is 100 points. QUESTION 1 - 20 points SHAPE MERGEFORMAT This graph depicts the REAL value of the broad index which is a weighted average of the foreign exchange values of the U.S. dollar against the currencies of a large group of major U.S. trading partners. a) Consider the following table of price levels,

The mainly methodology in this project are Augmented Dickey-Fuller (ADF) Unit Root Test, ordinary least square regression (OLS) and Vector autoregression (VAR) model, which utilize in this paper to examine the relationships between the exchange rate and various economic fundamental variables. About econometric software, where it is used is Stata.