Upon reading in the newspaper that the dollar exchange rate with the euro has depreciated 12% in the last month, after a 15% appreciation in the previous month, one of your friends tells you, “I don’t understand a thing about these currency fluctuations. Surely the market must be irrational. Nothing justifies such large movements up and down.” What is your response?

Upon reading in the newspaper that the dollar exchange rate with the euro has depreciated 12% in the last month, after a 15% appreciation in the previous month, one of your friends tells you, “I don’t understand a thing about these currency fluctuations. Surely the market must be irrational. Nothing justifies such large movements up and down.” What is your response?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterA6: Appendix 6: Government Intervention During The Asian Crisis

Section: Chapter Questions

Problem 9DQ

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Similar questions

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PLEASE EXPLAIN THE APPROACH TO SOLVE THE PROBLEM IN WRITING INSTEAD OF JUST SOLVING A year ago, a Swiss investor bought a 1-year U.S. Treasury security at a price of $9,708.74, with a maturity value of $10,000. The exchange rate at that time was 1.420 Swiss francs per dollar. Today, at maturity, the exchange rate is 1.324 Swiss francs per dollar. What is the rate of return to the Swiss investor? you must explain your approach to solve the problem in writing and explain the effect of exchange rate on the rate of return.
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In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates Spot exchange rate: Yen 106/$ U.S. dollar interest rate per annum 10% Japanese Yen interest rate per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: b.1) What would the spot exchange rate (Yen/$) be in 90 days? b.2) Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days? If no, explain why. Thank You