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Why would the Fed’s indirect intervention have a stronger impact on some currencies 1. Feedback Effects. Explain the potential feedback effects of a currency’s changing value on inflation. 2. Indirect Intervention. Why would the Fed’s indirect intervention have a stronger impact on some currencies than others? Why would a central bank’s indirect intervention have a stronger impact than its direct interven ...

Other / Other 16 Apr 2016

Why do you think the values of bonds issued by Asian governments declined 1. During the Asian crisis, Hong Kong and China successfully intervened (by raising their interest rates) to protect their local currencies from depreciating. Nevertheless, these countries were also adversely affected by the Asian crisis. Why do you think the actions to protect the values of their currencies affected these countries’ economies? Why do you t ...

Other / Other 16 Apr 2016

During the Asian crisis, some of the local firms in Asia borrowed dollars 1. During the Asian crisis, direct intervention did not prevent depreciation of currencies. Offer your explanation for why the interventions did not work. 2. During the Asian crisis, some of the local firms in Asia borrowed dollars rather than local currency to support local operations. Why would they borrow dollars when they really needed their local curren ...

Other / Other 16 Apr 2016

Stockholders recently voted in a new management team 1. A new firm is developing its business plan. It will require $615,000 of assets, and it projects $450,000 of sales and $355,000 of operating costs for the first year. Management is reasonably sure of these numbers because of contracts with its customers and suppliers. It can borrow at a rate of 7.5%, but the bank requires it to have a TIE of at least 4.0, and if the TIE falls below ...

Other / Other 16 Apr 2016

Compare and contrast the fixed, freely floating, and managed float exchange rate 1. Exchange Rate Systems. Compare and contrast the fixed, freely floating, and managed float exchange rate systems. What are some advantages and disadvantages of a freely float¬ing exchange rate system versus a fixed exchange rate system? 2. Intervention with Euros. Assume that Belgium, one of the European countries that uses the euro as its currency, would ...

Other / Other 16 Apr 2016

Freely Floating Exchange Rates 1. Effects of Indirect Intervention. Suppose that the government of Chile reduces one of its key interest rates. The values of several other Latin American currencies are expected to change substantially against the Chilean peso in response to the news. a. Explain why other Latin American currencies could be affected by a cut in Chile’s interest rates. b. How would the central banks of other Lat ...

Other / Other 16 Apr 2016

What is the impact of a weak home currency on the home economy 1. Intervention Effects. Assume there is concern that the United States may experience a recession. How should the Federal Reserve influence the dollar to prevent a recession? How might U.S. exporters react to this policy (favorably or unfavorably)? What about U.S. importing firms? 2. Currency Effects on Economy. What is the impact of a weak home currency on the home economy, ...

Other / Other 16 Apr 2016

What do you think will happen to the Thai baht’s value 1. What are some of the potential disadvantages for Thai levels of inflation associated with the floating exchange rate system that is now used in Thailand? Do you think Blades contributes to these disadvantages to a great extent? How are companies such as Blades affected by a freely floating exchange rate? 2. What do you think will happen to the Thai baht’s value when ...

Other / Other 16 Apr 2016

Why did the crisis put upward pressure on interest rates 1. The Asian crisis showed that a currency crisis could affect interest rates. Why did the crisis put upward pressure on interest rates in Asian countries? Why did it put downward pressure on U.S. interest rates? 2. It is commonly argued that high interest rates reflect the expectation of high inflation. Based on this theory, how would expectations of Asian exchange rates change ...

Other / Other 16 Apr 2016

Barry believes that the Japanese yen will fluctuate widely against the U.S. dollar 1. Speculating with Currency Options. Barry Egan is a currency speculator . Barry believes that the Japanese yen will fluctuate widely against the U.S. dollar in the coming month. Currently, onemonth call options on Japanese yen (Â¥) are available with a strike price of $.0085 and a premium Future spot rate $1.065 $1.13 $1.1 Future spot rate $1.06 ...

Other / Other 14 Apr 2016