Show the relationship between private saving, public saving, investment, and the current account. If the U.S. dollars give a 3% rate of return, and euro gives 4%. Suppose the current exchange rate 1 euro-1.2 dollars. And expected exchange rate 1.2 euro-1 dollar. Should you invest in U.S. dollars or euro?

Show the relationship between private saving, public saving, investment, and the current account. If the U.S. dollars give a 3% rate of return, and euro gives 4%. Suppose the current exchange rate 1 euro-1.2 dollars. And expected exchange rate 1.2 euro-1 dollar. Should you invest in U.S. dollars or euro?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...

See similar textbooks

Similar questions

Suppose that the government decides to cut spending. In a three graphs diagram, show theimpact of this policy on real interest rate, national saving, investment, net capital outflows,demand for currency (NX), and supply of currency? Will the currency appreciate ordepreciate?
Calculate the net present value in year 0, of the next series of payments. Suppose that i = 10% per year.
Assume that the level of interest rates is about the same in the US and in the UK. You buy a British pound today at $1.10/pound and sell it after 1 year for $1.17/pound . In this case, you difference in return from holding pounds instead of dollars was a___ of ____. A. loss, 7% B. loss, 6.36 % C. gain , 7 % D. gain, 6.36%
Suppose the demand for dollars (in exchange for euro) is given by the equation: D = 160 + 0.020Y(for) - 550 r(for) + 700r - 28 e(nom) The supply of dollars is given by: S = 80 + 0.022Y + 300r(for) - 640r + 24 e(nom) Suppose output and the real interest rate in the domestic country and the foreign country are: Y = 8,000, Y(for) = 9000, r = 0.060, r(for) = 0.040 Calculate the equilibrium value of the nominal exchange rate. In your calculations, carry out your intermediate steps to three decimals and round your answer to three decimals.
3 In July 2021, a one-year Turkish bond had an interest rate of 18% and the exchange rate between the dollar and the Turkish lira was $1 = 8.68 lira. As of July 2022, the exchange rate has changed to $1 = 17.28 lira. Suppose an American invested $1000 in a one-year Turkish bond in July 2021. What rate of return would she have earned during the year (between July 2021 and July 2022)? Show all work
For a European investor, what is the rate of return in euro on: “a ¥10,000 deposit in a Japanese bank in a year when the interest rate on Yen is 12 % and the Yen per euros exchange rate moves from ¥1.40 per euros to ¥1.20 per euros” A. Compute the rate of return without the formula B. Compute the approximation of this rate of return using the formula Only typed answer
If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate, the expected return on ________-denominated assets in terms of ________ percent. A. euro; euros is 7 B. euro; dollars is 1 C. dollar; dollars is 7 D. dollar; euros is 1
3.a. If a country experiences a substantial increase in Net Capital Inflow, how do you think themarket of loanable funds will change in that country? Drawing a diagram explain whathappens to interest rate. b. Your friend tells you that he has read in an article that a country’s private sector might getinto trouble if the government keeps on borrowing from the private sector. Drawing adiagram for the markets of loanable finds, show your friend why this might be the case. Alsoreport the name of this phenomenon.
You are considering buying a bottle of wine. Supposethat the euro appreciates by 15% with respect to theU.S. dollar. Are you more or less likely to buy a bottleof Californian wine or French wine?
A large open economy has desired national saving of Sd = 1200 + 1000 rw, and desired national investment of Id = 1000 - 500 rw. The foreign economy has desired national saving of Sdfor = 1300 + 1000 rw, and desired national investment of Idfor= 1800 - 500 rw. The equilibrium world real interest rate equals a. 0.05. b. 0.10. c. 0.15. d. 0.20
Why do people of home country demand foreign currencies and why do they supply foreign currencies in forex market. Assuming that capital inflow in home country increases due to more negative impact of Corona virus in developed countries, explain whether PKR will appreciate or depreciate.
Let's suppose you have $1 million to invest. You are considering to invest in UK first, then convert the British Pound back to US$ in the future. You know following information: Annual Interest rate on investment in US: 2% Annual Interest rate on investment in UK: 1% Investment period: 1 year Current exchange rate: 1.52 $/BP Forward exchange rate which you can apply when converting BP to US$: 1.53 $/BP What will be profit or loss if you apply the covered-interest arbitrage? Profit, about $16645 (this is correct answer. I need step by step instruction)