International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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The concept that market forces in the macroeconomy can remedy a recession is referred to as:
Keynesianism: the use of expansive fiscal and monetary policies to resolve a recession.
The self-correcting mechanism
The consumption function
The paradox of thrift
How effective is the Yield Curve as a tool for assessing the coming of a recession?
What risk is due to changes in the level of interest rate in the economy and may affect industries at the same time?
a.systematic risk
b. inflation rate risk
c.foreign exchange rate risk
d.interest rate risk
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- What is the role of the Federal Reserve with interest rates during a recession?arrow_forwardHow is the market interest rate in the short-term and long-term financial market affected under the Pure Expectations theory when suppliers and users of loanable funds expect that interest rates will decrease the next year?arrow_forward(a) Compare the performance of these size premiums with the global market premium over this period. Do they outperform or underperform the market? (b) Examine the time-series return pattern of these size premiums. Are there any specific periods in which the size premiums outperform or underperform? Based on the time-series return pattern, do you think market condition (e.g. boom or recession) plays a role in explaining the return variation for the size premiums? (b) identify two potential theories/reasons why small firms may outperform large firms. instruction use the table given the table shows time-series average returns and standard deviations to the size premiums acrossthe five regions/countriesarrow_forward
- Suppose interest rates in the economy increase. How would such a change affect the costs of both debt and common equity based on the CAPM?arrow_forwardA country’s current account position moves from a surplus to a deficit. What will be the result? Pick a,b,c, or d A) an increase in real GDP B) a decrease in unemployment C) an increase in the exchange rate D) a decrease in the money supplyarrow_forwardWhat current rate environment is the US currently in by historical standards? (LOW, HIGH, AVERAGE) What are the expectations for rates in the US over the next year? How will this impact businesses borrowing money (debt)? What do you observe in day-to-day life regarding current inflation?arrow_forward
- Suppose you believe that the economy is just entering a recession. Your firm must raisecapital immediately, and debt will be used. Should you borrow on a long-term or a shorttermbasis? Why?arrow_forwardHomework Throughout the 1990s, the equity premium fell considerably especially in the USA. One conceivable reason for that change is a decrease in investors' required rates of return. What elements and dynamics may have led to a drop in the required rate of return during the 1990s?arrow_forwardWhat are some benefits of holding FX reserves (recall the Asian financial crisis of 1997)? Are there any costs and problems associated with holding too many FX reserves?arrow_forward
- Mexican interest rates are normally substantially higher than U.S. interest rates. What does this imply about the forward rate as a forecast of the future spot rate? Does the forward rate reflect a forecast of appreciation or depreciation of the Mexican peso? Explain how the degree of the expected change implied by the forward rate forecast is tied to the interest rate differential. Do you think that today’s forward rate or today’s spot rate of the peso provides a better forecast of the future spot rate of the peso?arrow_forwardSuppose you believe that the economy is just entering a recession. Your firm must raise capital immediately, and debt will be used. Should you borrow on a long-term or short-term basis? Why?arrow_forwardWhat effect would each of the following events likely have on the leavel of nominal interest rates? a. Households dramatically increase their savings rate. b. Corporations increase their demand for funds following an increase in investment opportunities. c. The govenment runs a larger-than-expected budget deficit. d. There is an increase in expected inflation.arrow_forward
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