Suppose that during a certain week the Fed announces a new monetary growth policy, Congress surprisingly passes legislation restricting imports of foreign automobiles, and Ford comes out with a new car model that it believes will increase profits substantially. How might you go about measuring the market’s assessment of Ford’s new model?
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Suppose that during a certain week the Fed announces a new
measuring the market’s assessment of Ford’s new model?
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- Suppose a new and more liberal Congress and administration are elected. Their first orderof business is to take away the independence of the Federal Reserve System and to forcethe Fed to greatly expand the money supply. What effect will this have:a. On the level and slope of the yield curve immediately after the announcement?b. On the level and slope of the yield curve that would exist 2 or 3 years in the future?Some of the websites show graphs indicating how one currency has done relative to another currency. a. Over the past year, how has the pound performed against the dollar? Does the dollar buy more or less pounds today than it did 1 year ago? b. Over the past year, how has the dollar performed against the yen? Does the dollar buy more or less yen today than it did 1 year ago?Suppose a new Congress and administration overrule the independence of the Federal Reserve System and force the Fed to greatly expand the money supply. What effect will this have? On the level and slope of the yield curve immediately after the announcement? On the level and slope of the yield curve that would exist two to three years in the future?
- As a member of the FOMC, the U.S. economy is entering a recession with a high rate of inflation. Write a directive to the committee about the conduct of monetary policy over the next two months. At the meeting, the committee will respond to changes in economic prospects as needed to support the attainment of its objectives. Your directive may address a target for the GDP growth rate, the federal funds rate, and the rate of inflation. Be sure to make specific proposals. Indicate why your recommendations will work.(a) Suppose that the economy of Microland is expanding rabidly. Due to this rapid expansion, the Federal Reserve Bank is pursuing a contractionary monetary policy. Draw clearly labeled graphs for each market (Money market, Goods Market and Investment) to show the effects of this policy on the equilibrium interest rate, investment and output. (b) Suppose that the economy of Macroland is expanding rabidly. Due to this rapid expansion, the Federal Government is pursuing a contractionary fiscal policy. Draw clearly labeled graphs for each market (Money market, Goods Market and Investment) to show the effects of this policy on the equilibrium interest rate, investment and output. Is there any crowding-out due to the contractionary fiscal policy?The government will be decreasingincome taxes. To an entity producingluxury bags, it would: A. Expect lower economic growth and may plan to produce less of these bags.B. Expect higher economic growth and may plan to produce more of these bags.C. Expect lower economic growth and may plan to produce more of these bags.D. Expect higher economic growth and may plan to produce less of these bags.
- Suppose Mexico is a major export market for vour U.S.-based company and the Mexican peso appreciates drastically against the US. dollar. This means: (A) This means your company products can be priced out of the Mexican market, as the peso price of A American imports will rise following the peso's fall. (B) your firm will be able to charge more in dollar terms while keeping peso prices stable. (C) your domestic competitors will enjoy a period of facing lessened price competition from Mexican imports D) both b an(d c are correctIn the short-run macro model, if aggregate expenditure is less than GDP, output in the future will a. decline as firms cut production to stop the buildup of inventories b. increase as firms cut their prices to try to stop depletion of inventories c. remain unchanged indefinitely unless government takes action d. decline as firms increase their prices to stop the buildup of inventories e. increase as firms increase production to try to stop depletion of inventoriesSuppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1001, and the exchange rate will be $1.28/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $792, and the exchange rate will be $1.45/£. You assess that the American economy will experience a boom with a 70 percent probability and a recession with the remaining probability.Estimate the Covariance between P and S
- Recall that if the economy continues to be strong, Carson Company may need to increase its production capacity by about 50 percent over the next few years to satisfy demand. It would need financing to expand and accommodate the increase in production. Recall that the yield curve is currently upward sloping. Also recall that Carson is concerned about a possible slowing of the economy because of potential Fed actions to reduce inflation. It is also considering issuing stock or bonds to raise funds in the next year. a. If Carson issued stock now, it would have the flexibility to obtain more debt and would also be able to reduce its cost of financing with debt. Why? b. Why would an IPO result in heightened concerns in financial markets about Carson Company’s potential agency problems? c. Explain why institutional investors, such as mutual funds and pension funds, that invest in stock for longterm periods (at least a year or two) might prefer to invest in IPOs rather than purchase other…A firm is considering several policy changes to increase sales. It will increase the variety of goods it keeps in inventory, but this will increase inventory by $12,000. It will offer more liberal sales terms, but this will result in average receivables increasing by $69,000. These actions are expected to increase sales by $820,000 per year, and cost of goods will remain at 80% of sales. Because of the firm’s increased purchases for its own production needs, average payables will increase by $37,000. What effect will these changes have on the firm’s cash cycle? (Use 365 days in a year. Do not round your intermediate calculations. Round your answer to 2 decimal places.) Change in cash cycle daysSuppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,000,000, and the exchange rate will be $1.58 per pound. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $500,000, and the exchange rate will be $1.78 per pound. You assess that the American economy will experience a boom with a 70 percent probability and a recession with a 30 percent probability. Required: a. Estimate your exposure to the exchange risk. b. Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. c-1. How would you hedge this exposure? c-2. If you hedge, what is the variance of the pound value of the hedged position?