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- Assume that the U.S. interest rate is 12 percent, while the British interest rate is 15 percent. If interest rate parity exists, then: O a.U.S. investors will earn 12 percent whether they use covered interest arbitrage or invest in the United States. O b. U.S. investors will earn a higher rate of return when using covered interest arbitrage than what they would earn in the United States. O c. British investors who invest in the United Kingdom will achieve the same return as U.S. investors who invest in the United States. O d. U.S. investors will earn 15 percent whether they use covered interest arbitrage or invest in the United States.Peru is growing relatively quickly and has begun to attract large inflows of foreign direct investment. While Peru relishes the benefit of the inflows, it is concerned about the potential negative effects if the foreign investors pull out their investments quickly. One particular reason for Peru to be concerned is that its banks have taken out large loans denominated in U.S. dollars and European euros from foreign banks. If the foreign direct investment is withdrawn quickly from Peru, what will be the effect on each of these items? A. Peru's money supply - B. Peru's exchange rate with other countries - C. Peru's exports - D. Peru's trade deficit - Answer Bank: No Effect, Increase or Decreasea) Subsidiary A of a U.S. Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What is the net inflow or outflow, as measured in U.S. dollars? b) If you are a U.S. importer of Indian goods and you believe that today’s forward rate of the INR is a very accurate estimate of the future spot rate, do you think INR call options would be a more appropriate hedge than a forward hedge? c) Under what conditions would a U.S. parent’s subsidiary consider using a “leading” strategy and a “lagging” strategy to reduce its transaction exposure? Explain
- quesiton Should DAMC consider other foreign investment strategies, like strategic alliance, jointventure etc. to enter other new markets/countries? Provide arguments in your favourThe following information on Ghana’s Balance of Payments Accounts for 2013 (million U.S. Dollars) is provided. CURRENT ACCOUNT US$ 1. Merchandise Exports ( £.o.b) 11,679.40 2. Merchandise Imports (£.o.b) -16,092.50 Trade balance -4,413.1 3. Services (net) -2,346.84 Receipts 3,539.40 Payments -5,886.24 4. Income (net) 4,155.98 Receipts -592.96 Payments 202.24 5. Current Transfers (net) 795.20 CAPITAL & FINANCIAL ACCOUNT 6. Capital Account 1,127.78 Capital Transfers 1,127.78 7. Financial Account Direct Investments 3,355.68 Portfolio Investments -87.28 Other Investments 1,737.96 Of which: Short term capital -164.12 Other capital investments 2,172.40…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
- Exercise 6 (Dark Matter Versus Return Differentials). Suppose net investment income is N II = 300, the net international investment position is N IIP = −2000, the international liability position is L = 5000, and the interest rate on international liabilities is 4 percent (r L = 0.04). Part 1: Economic consultant Jim Taylor, a strong advocate of the return differential hypothesis, maintains that the rate of return on the country’s international assets, denoted r A, is different from the return on its net international liabilities, r L. Find the value of r A consistent with Taylor’s view. Part 2: Economist Carol Powell does not support the idea of return differentials. Instead, she defends the dark matter hypothesis. Specifically, she believes that A is not accurately recorded and that the rate of return is 4 percent on both, A and L. Calculate the amount of dark matter and the ‘true’ international asset position, which we will denote T A, consistent with Powell’s view.A.Foreign Direct Investment (FDI) is one of the riskiest forms of international investing. Describe a framework which describes why MNEs choose this FDI rather than alternative models. B. Explain the fundamental dilemma of international trade and describe the system that has evolved to protect both importer and exporter.According to the open-economy macroeconomic model, import quotas increase which of the following O a. net exports and net capital outflow O b. net exports but not net capital outflow. O c. net capital outflow but not net exports. O d. neither net exports nor net capital outflow.
- A company manufacturers a product in the United States and sells it in England. The unit cost of manu- facturing is $50. The current exchange rate (dollars per pound) is 1.221. The demand function, which indicates how many units the company can sell in England as a function of price (in pounds) is of the power type, with constant 27556759 and exponent 22.4. a. Develop a model for the company’s profit (in dol- lars) as a function of the price it charges (in pounds). Then use a data table to find the profit-maximizing price to the nearest pound. b. If the exchange rate varies from its current value, does the profit-maximizing price increase or decrease? Does the maximum profit increase or decrease?Based on class concepts, will the depreciation of Turkey's currency increase Turkish exports in the long-run? LR = long run Group of answer choices Yes, because the depreciation of the Turkish Lira will increase LR exports due to to expenditure switching No, because the depreciation of the Turkish Lira will decrease LR exports due to to expenditure switching No, because the depreciation of the Turkish Lira will decrease LR exports due to negative valuation effects Yes, because the depreciation of the Turkish Lira will increase LR exports due to the benefit of valuation effectsQ.1.10 Which of the following statements is correct? (2)(1) When a British firm invests in a bicycle manufacturing facility in South Africa,the amount concerned is entered as an inflow on the current account of theSouth African balance of payments.(2) When someone purchases a second‐hand car, the transaction is included inthe calculation of GDP in the year the sale took place.(3) A deficit on the current account of the balance of payments indicates thatthe country exported more than it imported during the period in question.(4) In the base year, the value of nominal GDP is equal to the value of real GDP.