Question Details

Trade Deficit Effects on Exchange Rates 



1.	Interaction of Exchange Rates. Assume that there are substantial capital flows among Canada, the U.S., and Japan. If interest rates in Canada decline to a level below the U.S. interest rate, and inflationary expectations remain unchanged, how could this affect the value of the Canadian dollar against the U.S. dollar?  How might this decline in Canada- interest rates possibly affect the value of the Canadian dollar against the Japanese yen?

2.	Trade Deficit Effects on Exchange Rates . Every month, the U.S. trade deficit figures are announced.  Foreign exchange traders often react to this announcement and even attempt to forecast the figures before they are announced.

	a.	Why do you think the trade deficit announcement sometimes has such an impact on foreign exchange trading?

b.	In some periods, foreign exchange traders do not respond to a trade deficit announcement, even when the announced deficit is very large.  Offer an explanation for such a lack of response.



Business Management Assignment Help, Business Management Homework help, Business Management Study Help, Business Management Course Help