Until August 1971, industrialized countries around the world maintained a fixed exchange rate of their currencies with the U.S. dollar, which wasinked to gold. The gold standardized system was called the Bretton Woods Fixed Exchange Rate System. This system collapsed in 1971, and sincethen, the dollar has not been linked to goldBased on your understanding of the international monetary system, complete the following statements:exchange rate is the quoted price for a unit of foreign currency to be delivered at a specified date in the future.exchange rate that is allowed to fluctuate only slightly (if at all) around the par value.The government sets aWhen American customers import less from Europe than they export to Europe, the euroThe▼ relative to the dollar.of a currency refers to an increase or decrease of the stated par value of a currency whose value is fixed.Under afloating regime, supply and demand for the currency determine the exchange rate.Currencies under such a regime are calledcurrencies.occurs when a country locks its currency to a specific currency or basket of currencies at a fixed exchange·Arate.

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

Answered: Until August 1971, industrialized…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter4: Exchange Rate Determination

Section: Chapter Questions

Problem 25QA

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Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot rate 2. ____________ Currency appreciation 3. ____________ Translation risk 4. ____________ Transaction risk 5. ____________ Exchange rate Column B a. The rate at which one currency can be traded for another currency. b. The possibility that future cash transactions will be affected by changing exchange rates. c. A month ago, 1 U.S. was worth 8.5 Mexican pesos. Today, 1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what? d. The degree to which a firms financial statements are exposed to exchange rate fluctuation. e. The exchange rate of one currency for another for immediate delivery (today).
Raton Co. is a U.S. company that has net inflows of 100 million Swiss francs and net outflows of 100 million British pounds. The present exchange rate of the Swiss franc is about $.70 while the present exchange rate of the pound is $1.90. Raton Co. has not hedged these positions. The Swiss franc and British pound are highly correlated in their movements against the dollar. Explain whether Raton will be favorably or adversely affected if the dollar weakens against foreign currencies over time.
The following spot FX rates were reported: Japanese Yen British Pound Australian Dollar US Dollar 0.010267 1.616500 0.957900 The exchange rates indicate the number of US dollars necessary to purchase one unit of the foreign currency. From the perspective of a US investor, are the preceding FX rates direct or indirect quotations? How much of each of the foreign currencies is needed to buy one US dollar?
In the past, the U.S. dollar's exchange rate with the Iceland krona was 0.0008 dollars per krona. If today the exchange rate is 0.0006 dollars per krona, the dollar a. strengthened against the krona. b. weakened against the krona. c. is not highly correlated to the krona. d. The answer cannot be determined without knowing the number of kronas needed to buy a dollar.
Under a managed-float exchange rates regime, if the rate of inflation in Australia is less than the rate of inflation of its trading partners, the AUD will likely: a. depreciate against foreign currencies. b. be officially devalued by the Reserve Bank. c. appreciate against foreign currencies. d. be officially revalued by the Reserve Bank
In 1985 and 1986, U.S. interest rates fell relative to interest rates in Japan. Under floating exchange rates, this would lead to the dollar's exchange value depreciating against the yen. True False
Let say, the exchange rate is $1.72 per pound, but the equilibrium exchange rate of pounds is $1.70. This implies that ______. A. U.S. demand for pounds would be less than the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market B. U.S. demand for pounds would exceed the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market C. U.S. demand for pounds would exceed the supply of pounds for sale and there would be a shortage of pounds in the foreign exchange market D. U.S. demand for pounds would be less than the supply of pounds for sale and there would be a surplus of pounds in the foreign exchange market
During much of the 1800s, developed nations employed what came to be known as the ______________ international monetary system to manage exchange rates * Bretton Woods Gold Standard Fixed Regime Floating Regime
When exchange rates are quoted as the number of U.S. dollars per unit of foreign currency, it is referred to as a . European terms b . American terms c . spot-market terms d . fixed-exchange terms
The Interest Rate Parity is one of the key international parity relationships that have profound implications for international financial management in the sense that it can be used in how foreign exchange rates are determined, and to forecast foreign exchange rates. The current spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,500,000 or £1,000,000.Required:i. From the above information, determine whether the interest rate parity is currently holding. ii. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit.iii. Explain how the IRP will be restored as a result of covered arbitrage activities.iv. Explain the conditions under which the forward exchange rate will be an unbiased predictor of the future spot exchange rate.v. Explain what Interest…

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