Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 41.A, Problem 1ADQ
To determine
Comparison of Bretton woods system with the gold standard.
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2. What has to be true of the capital account between two countries(in below question) if the current account is negative?
1. Assume the theory of absolute convergence is literally true. The current GDP per capita of Iran is $5000 and the current GDP per capita of Switzerland is $30000. What will happen to the difference between these two countries in the "long run"?
3. Assume you are thinking about buying a three year bond with a face of $1000 and coupon rate of 5% (paid every year including at maturity, so you receive three coupon payments). What is your valuation of this asset if your discount rate is 10%? 5%?
*Please answer question 1 & 3.
Table 18-3
Country
Units of Foreign Currency per U.S. Dollar
U.S. Dollars per Unit of Foreign Currency
Danish krone
5.00
EU euro
0.70
Refer to Table 18-3. Given the following exchange rates in the above table, what are the exchange rates stated as U.S. dollars per Danish krone and U.S. dollars per EU euro respectively?
Group of answer choices
0.02 dollars per krone and 0.70 dollars per euro
2.00 dollars per krone and 7.14 dollars per euro
0.05 dollars per krone and 1.30 dollars per euro
0.20 dollars per krone and 1.43 dollars per euro
Suppose that the spot exchange rate is 1.6 euros per dollar, and that the annual interest rates for 180-day deposits are 4 percent in the United States and 10 percent in Germany. Explain how a U.S.
investor would use covered interest arbitrage to hedge against the risk of purchasing a 180-day bill in Germany.
Assuming high capital mobility between the United States and Germany, calculate the 180-day forward exchange rate that would be required to eliminate an opportunity for risk-free profits by shifting funds from the United States to Germany.
Chapter 41 Solutions
Economics (Irwin Economics)
Ch. 41.1 - Prob. 1QQCh. 41.1 - Prob. 2QQCh. 41.1 - Prob. 3QQCh. 41.1 - Prob. 4QQCh. 41.A - Prob. 1ADQCh. 41.A - Prob. 1ARQCh. 41.A - Prob. 1APCh. 41 - Prob. 1DQCh. 41 - Prob. 2DQCh. 41 - Prob. 3DQ
Ch. 41 - Prob. 4DQCh. 41 - Prob. 5DQCh. 41 - Prob. 6DQCh. 41 - Prob. 7DQCh. 41 - Prob. 8DQCh. 41 - Prob. 9DQCh. 41 - Prob. 10DQCh. 41 - Prob. 11DQCh. 41 - Prob. 1RQCh. 41 - Prob. 2RQCh. 41 - Prob. 3RQCh. 41 - Prob. 4RQCh. 41 - Prob. 5RQCh. 41 - Prob. 6RQCh. 41 - Prob. 7RQCh. 41 - Prob. 8RQCh. 41 - Prob. 9RQCh. 41 - Prob. 10RQCh. 41 - Prob. 1PCh. 41 - Prob. 2PCh. 41 - Prob. 3PCh. 41 - Prob. 4PCh. 41 - Prob. 5P
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