An open market sale leads to : prices and the money supply. interest rates the exchange rate O A. falling; falling: falling; falling B. rising: falling: falling; rising C. falling: falling: rising: falling D. falling: rising; rising; falling E. rising: rising: falling; rising O O O O
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- Suppose a bank sells a 6-month at-the-money put option on 1 million GBPs. Current exchange rate is 1.56 USD per GBP. Risk free interest rates are 2% and 3% per year for USD and GBP respectively. Volatility of the exchange rate is 20%. How does the bank delta hedge? It's Investment Course!Assume that when digging to plant flowers at the backyard of Jordanstown a very rich vein of gold is discovered. If the government (a) monetises (b) sterilises this windfall how will the sterling pound – EU euro exchange rate be affected Give proper explanationsChoose the correct answer and give correct explaination 1. A central bank can fix an exchange rateA. In perpetuityB. Only for as long as the market believes that it has the political will to do so.C. Only for as long as it has reserves of goldD. Only for as long as it has independence of monetary policy.
- Give typing answer with explanation and conclusion Consider country A, which uses a fixed exchange rate system pegging its currency value against the US dollars and has perfect capital mobility. In the short run, if the U.S. central bank, the Federal Reserve Board of the U.S., lowers the money supply of the U.S., then Select one: a. The Reserve Bank of Country A would have to lower its money supply. b. The Reserve Bank of Country A would have to raise its money?Question 3:Consider a Gold Standard. Suppose the Canadian central bank buys bonds on the Canadian stockmarket. Then the Canadian dollar will value. The Canadian central bank would then haveto gold.A) lose; buyB) lose; sellC) gain; buyD) gain; sellWhy is it that in a pure, flexible exchange rate system,the foreign exchange market has no direct effect onthe money supply? Does this mean that the foreignexchange market has no effect on monetary policy?
- Thomas , a currency trader in East African Community, has ksh 400,000. He wishes to assess if triangular arbitrage by moving to Uganda, and Tanzania. The exchange rate quotes from the currency convertor was: 32TZ/1 KES 20UGH/IKES Agreed exchange rate between Uganda shillings and Tanzania shilling was 1.5 UGH /1TZ Compute the cross exchange rate and triangular arbitrage profit. Explain your answer.show by a diagram and also explain in detail how a decrease in expectations from US deposits held in UK banks will affect the pound sterling/US dollar ERSuppose you obtain the following quotes: Foreign exchange market: Spot rate: SUS$/€ = 1.0623 180-day Forward rate: F180US$/€ = 1.0765 Money market (180-day): RUS$ = 5.75% p.a. R€ = 4.25% p.a. Note: Keep your answers to 4 decimal points if necessary. a) Based on the above information, is there any arbitrage opportunity? If yes, what should the commercial bank do to capture this arbitrage opportunity? If not, why? Explain. b) Suppose the commercial bank has the ability to “move” the market (i.e., affecting the spot exchange rate, the forward exchange rate, and the returns on bonds in both countries), what happens to these variables after the transactions carried in part (a)? Explain. c) Instead of affecting the interest rates and the 180-day forward rate, suppose the spot exchange rate bears all the burden of adjustments, find the US$/€ spot rate that would eliminate interest arbitrage
- For Appendix readers only. For the preceding example, set up the equivalent of Figure 16.4. Next, show the actions required on the part of the Mexican monetary authority in response to a decrease in income in Mexico, a decrease in income in the United States, and a contractionary monetary policy in the United States. In each case, explain the intuition of your results.Part 4 5 6 Answer all questions from this section. For each question, identify the statement as True,False, or Uncertain, and explain your reasoning A.1 Following the announcement that the amount of QE intervention by the central bankwill be reduced going forward (also known as Quantitative Tightening), according to theUIP condition, an immediate appreciation of home’s nominal exchange rate would beobserved. A.2 The difference between the slopes of the IS and RX curves depends only on the sensitivityof net exports to the real exchange rate. A.3 Consider a temporary positive inflation shock in a flexible exchange rate regime (with aninflation targeting central bank) and in a fixed exchange rate regime (where there is nopolicy intervention). Assume that both economies converge to a medium run equilibrium.Following the shock, inflation converges to its equilibrium value from above in both cases.A.4 The central bank of a common currency area should not respond to a shock specific toone…Question Threea. Explain the role that the Balance of Payment plays to a country such as Zambia giving practical examples.b. Elaborate in detail the components of the Balance of Payment stating the factors that affect the stated components.