U.S. dollar, Norwegian krone, Swiss franc and Japanese yen often are labelled “haven currencies.” During times of international stress, each of these currencies typically can be expected to: (a) depreciate; (b) appreciate; (c) be devalued; (d) yield fewer units of foreign currencies whe

Q: Those who say the growing current account deficit in the United States is not a significant problem…

A: A current account deficit means that increasing capital account surplus, which means that the…

Q: Suppose that the Reserve Bank of New Zealand believes the New Zealand dollar (NZD) is too weak and…

A: Facts in the given question: Reserve Bank of New Zealand believes the New Zealand dollar (NZD) is…

Q: If a country is having its currency pegged to the U.S. dollar (hard peg), and the confidence in the…

A: To defend its fixed rate against the dollar, the central bank should dip into its international…

Q: To force the value of the British pound to depreciate against the dollar, the Federal Reserve…

A: Foreign exchange fluctuations are based on supply and demand for the currency in the exchange market…

Q: ABC Inc. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs.…

A: Jonathan Inc has much higher exposure as compared to other firms as the negative correlation will…

Q: What happens over time to the currencies of countries with higherinflation rates than that of the…

A: Currency exchange rate is the rate at which the currency of one country is traded for another…

Q: The ABC Corporation is a U.S. exporter that invoices its exports to the United Kingdom in British…

A: U.S. exporter bills the exports at foreign currency i.e. British pounds. Hence, the exporter…

Q: Which statement is correct? A. The foreign exchange market is the largest financial market in the…

A: Foreign exchange market is largest financial market in the world. It is bigger than any stock…

Q: Which of the following is an example of economic exposure but not an example of transaction…

A: There are three types of exposures: 1. Translation exposure 2. Transaction exposure 3. Economic…

Q: the 1990s, Russia was attempting to import more goods but had little to offer other countries in…

A: In 1990 Russia was more importing than exporting so there was tremendous pressure on Ruble currency.

Q: Until August 1971, industrialized countries around the world maintained a fixed exchange rate of…

A: Answer 1:The correct answer is “Forward exchange rate”.Justification:  A forward exchange rate is…

Q: Rush records its transactions in U.S. dollars. A purchase of goods resulted in a payable denominated…

A: An importer always has the expectations that foreign currency depreciate and home currency…

Q: Suppose a U.S. firm builds a factory in China, staffs it with Chinese workers, uses materials…

A: Exchange rate risks are the risks associated with changes in interest rates.

Q: The statement “the yen rose today against the dollar from 121 to 117” will only make sense if…

A: Exchange rate is the rate on which the currency of one country is exchanged with the currency of…

Q: the 1990s, Russia was attempting to import more goods but had little to offer other countries in…

A: in that Russia was facing financial crisis type of situation where there was no demand for Russian…

Q: In general, a firm that concentrates on local sales, has very little foreign competition, and…

A: Any import becomes expensive when the local currency loses its strength with respect to the foreign…

Q: If the downward pressure on the currency persists for a long period, even after successive…

A: Downward pressure: It is the devaluation in the value of the currency. It mainly happens when the…

Q: Under a managed-float exchange rates regime, if the rate of inflation in Australia is less than the…

A: Higher rate of inflation in any country tends to have a negative impact on its currency. Since it…

Q: When fewer units of the Japanese yen are required to buy one dollar, the foreign currency is said to…

A: Appreciation means an increase in the value of the currency, with respect to the other currency and…

Q: Other things being constant, if the U.S. real rate of interest exceeds that of its trading partners,…

A: The term real interest rate refers to the interest rate that has been adjusted for the effects of…

Q: Under a flexible exchange rate system, an increase in the value of the U.S. dollarin tems of other…

A: Exchange rate system is a way in which exchange rate is determined that is the value of domestic…

Q: Suppose the Japanese government pegs the yen to the U.S. dollar. What could the Japanese central…

A: Foreign exchange market is an institution for exchange of different currencies.

Q: According to the flow of balance of payment (BOP) approach to exchange rate determination, there are…

A: 1.a. When a devoloping country runs persistent BOP deficits for a couple of years, then it may face…

Q: These are currency quotes found on a foreign market: GH 4.30/$, and GH 4.55/$. ii. Which currency…

A: First quote 1$ = GH4.30 Second quote 1$ = GH 4.55 In first case if you have 1$ you can buy GH 4.30.…

Q: When the value of the euro increases compared to the U.S. dollar, the price of U.S. exports to…

A: Appreciation of Currency refers to the increase in the value of a currency as compared to the other…

Q: When the actual foreign exchange rate for the dollar is greater than the equilibrium rate, the…

A: The above statement is true.

Q: Assume that the yen is selling at a forward discount in the forward-exchange market. Then, most…

A: In exchange rate will be effected by interest rate prevailing in country of comparatives currencies.

Q: An Australian mining company exports iron ore to other countries, such as China, South Korea and…

A: Derivatives refer to those financial instruments that derive their value from one or more…

Q: f the U.S. dollar has fallen in comparison with foreign currencies, which of the following…

A: When the US Dollar rises in comparison with other currencies, it means that the US dollar has…

Q: Under a floating exchange-rate system, an increase in the international demand for electronic…

A: The term exchange rate refers to the rate that is used to convert one currency into some other…

Q: China has a fixed rate regime. They keep their currency in terms of trade, fixed against the US…

A: Economy refers to the state or country in which the production of goods or services is to be done.…

Q: Until August 1971, industrialized countries around the world maintained a fixed exchange rate of…

A: A Forward exchange rate is the quoted price for a unit of foreign currency to be delivered at a…

Q: Raton Co. is a U.S. company that has net inflows of 100 million Swiss francs and net outflows of 100…

A: Computation of net cash inflows or cash outflows of Raton co. in US$: Raton Co. has a Net inflow:…

Q: A rise in the domestic inflation rate and a simultaneous, yet bigger rise in the foreign inflation…

A: The inflation rate refers to the general price level of the country. The rise in the price level…

Q: main reason that U.S. currency cannot be turned in to the government in exchange for a tangible…

A: The answer is stated below:

Q: Imagine an American MNC. Why it might decide to borrow in a country such as Brazil, where interest…

A: In a region like Brazil with very large interest rates, a multinational company might choose to…

Q: Imagine that the UK had an interest rate of 0.5% and the USA had an interest rate of 0.75%. Which of…

A: Interest rate parity states that the exchange rate between two country's currency depends on the…

Q: The size of a country’s national debt should not be of much economic concern as long as:

A: Government too requires funds so that the country or even state can run by them, it is the amounts…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.