EBK ECONOMICS: PRINCIPLES AND POLICY
13th Edition
ISBN: 9780100605930
Author: Blinder
Publisher: YUZU
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Question
Chapter 36, Problem 7DQ
To determine
The effect of change in exchange rate on the value of money.
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Students have asked these similar questions
You hold $12,000 in cash and the exchange rate of USD (American dollar) to Venezuelan bolivar
is 10.15. Calculate how much your $12,000 are worth in Venezuelan bolivars (you will need this
number for the calculations below).
Now, suppose that you hold as much cash in bolivars, as you found above. But the exchange
rate of USD to Venezuelan bolivar goes down to 9.85. How much would your cash amount in
bolivars be worth in USD?
Question 29 options:
A)
$120
B)
$11,643
$12,000
D)
$12,365
Suppose that you hold a piece of land in the city of London that you may want to sell in one year. As a U.S. resident, you are concerned with the dollar value of the land. Assume that if the British economy booms in the future, the land will be worth £2,000, and one British pound will be worth $3.20. If the British economy slows down, on the other hand, the land will be worth less, say, £1,500, but the pound will be stronger, say, $3.30 per pound. You feel that the British economy will experience a boom with a 60 percent probability and a slowdown with a 40 percent probability.
Required:
Estimate your exposure (b) to the exchange risk.
Note: Negative amount should be indicated by a minus sign.
Compute the variance of the dollar value of your property that is attributable to exchange rate uncertainty.
Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting EUR/USD at 1.2459 and Credit Suisse is offering USD/CHF at 0.8850. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current EUR/CHF of 1.1048. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage. What is the EUR/CHF rate that eliminate triangular arbitrage? (X.XXXX)
Chapter 36 Solutions
EBK ECONOMICS: PRINCIPLES AND POLICY
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