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Assignment Chapter 10b

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Hiếu Trần
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Assignment Chapter 10b

Uploaded by

Hiếu Trần
Copyright
© © All Rights Reserved
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Download as DOC, PDF, TXT or read online on Scribd
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Assignment Chapter 10

1. The price of good X is 15 € in Europe and 20$ in the Unites States. The spot rate is
announced at E$/€ = 1.4. According to the Law of One Price, which currency is
depreciated?
2. A Basket consists of four goods A,B,C,D which have the following prices in the Europe:
Pa = 3€; Pb = 12 €; Pc = 15€; and Pd= 9€. Their prices in the United States are Pa=6$;
Pb = 13$; Pc = 17$; and Pd = 11$. The spot rate is E$/€ = 1.4. According to the PPP
theory, which country has its goods overvalued?
3. When price changes by 6%, the quantity of goods changes by 5%, the total revenue is
expected in to change by:
a. 30%
b. 5%
c. 6%
d. 11%
4. Inflation rate in the Unites States is 6%. Inflation rate in the Europe is 8%. The Spot Rate
E$/€ is expected to ----------------- in future.
a. Increase by 2%
b. Decrease by 2%
c. Increase by 14%
d. Decrease by 14%
5. The U.S Federal Reserve has increases the Money Supply of USD by 3%. At the same
time, the Money Supply is Europe has been adjusted to reduce by 1.5% last year. The
Exchange rate E$/€ will be
a. Depreciated by 1.5%
b. Appreciated by 1.5%
c. Depreciated by 4.5%
d. Appreciated by 4.5%
6. Inflation Rate increases by 5%. According to the Fisher Effect:
a. The Nominal Interest Rate will reduce by 5%
b. The Real Interest Rate will reduce by 5%
c. The Nominal Interest Rate will increase by 1.5%
d. The Real Interest Rate will increase by 1.5%
7. Due to recovery efforts, economic growth rate in the United States is expected to be
higher than that of Europe by 1.2% in 2016. The Exchange Rate E$/€ is predicted to
a. Be depreciated by 1.2%
b. Be appreciated by 1.2%
c. Be unchanged
d. Fluctuated by 2.4%
8. A Japanese investor buys stocks of American Airlines Corp. It is worth $45,000, in cash.
How is this transaction recorded into U.S Balance of Payments?
a. Debit to Current Accounts
b. Credit to Capital Accounts
c. Debit to Capital Accounts
d. Credit to Current Accounts
9. Vietnamese citizens went working in Korea. They sent their income back to the families
in Vietnam, worth of $678,000. Which account is affected?
a. Export of goods
b. Foreign Investment
c. Inflow of foreign factor income
d. Receiving ODA
10. Which of the following forms of international economic integration has the common
currency among the member countries?
a. Economic Union
b. Free-Trade Agreement
c. Bilateral Trade Agreement
d. Custom Union.

PART 2:
1. Consider the United States and the countries it trades: Thailand, Mexico, China and
Japan. Assumes that these are the only four countries with which the US trades. The
Trade shares and exchanges rates for these four countries are as follows:

Country (Currency) Share of Trade $ per FX in 2009 $ per FX in 2010

Thailand (Baht) 36% 0.032 0.046

Mexico (peso) 22% 0.05 0.08

China (yuan) 15% 0.12 0.13

Japan (yen) 27% 0.015 0.026

a. Compute the percentage change from 2009 to 2010 in the four U.S bilateral exchange
rates (as US per unit of foreign exchange) in the table provided.
b. Use the trade share and weights to compute percentage change in the Nominal Effective
Exchange Rate for the U.S between 2009 and 2010 (in the U.S dollar per foreign
currency package).
c. Based on your answer to question b, what happened to the value of U.S dollar against this
basket between 2009 and 2010? How does this compare with the change in the value of
U.S dollar relative to Japanese Yen? Explain your answer.

2. Suppose the quotes for currencies in the three money centers are given as follows:

At London center: 1GBP = 156JPY

At Tokyo center: 1USD = 115 YPY

At New York center: 1USD = 0.78GBP

An investor has 100,000 USD. Is there any opportunity for arbitrage? If yes, explain how does
the investor use arbitrage to take advantage of these data? And how much could he or she earn
from this?

Deadline: May 26, 2022

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