Question

Your firm exports goods to Japan, you need to forecast the value of JPY against the...

Your firm exports goods to Japan, you need to forecast the value of JPY against the USD –i.e., you forecast St(USD/JPY). Clearly explain how each of the following will affect appreciation/depreciation of USD against JPY.

a. U.S. inflation has suddenly increased substantially, while Japan’s inflation remains low.

b. U.S. interest rates have increased substantially, while Japan’s interest rates remain low.

c. The U.S. income level increased substantially, while the Japan’s income level has remained unchanged.

d. The U.S. is expected to impose a small tariff on goods imported from Japan.

Homework Answers

Answer #1

a) USD will start depreciating as inflation will reduce the real value of USD. This will help exports as USD becomes cheaper.

b) USD will start appreciating as investments flow to US increasing the value of USD. This will hurt exports as USD becomes dearer.

c) According to money market equilibrium, higher income level will lead to increase in money supply and higher interest rates to maintain the money supply. As interest rates increase, USD will start appreciating as investments flow to US increasing the value of USD. This will hurt exports as USD becomes dearer.

d) As tariff is imposed, the price will rise and demand of imports will reduce. However, the increase in USD price due to tariffs will go to the US Govt and Japan will receive fewer dollars. These dollars are then converted to Yen and as a result due to lower dollars, the demand for Yen will be lower. As a result, USD will appreciate. s investments flow to US increasing the value of USD.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Honda Motor Part 1​: Honda Motor Company manufactures some of their models in Japan and exports...
Honda Motor Part 1​: Honda Motor Company manufactures some of their models in Japan and exports them to their U.S.​ subsidiary, American Honda. One such imported vehicle costs​ 1,772,000 JPY​ (Japanese Yen). American Honda purchases these vehicles from the parent company in​JPY, then sells them to dealers in the United States priced in​USD, at prices that remain stable over the course of a model year. American Honda is concerned about fluctuations in the JPY cost of the vehicles they purchase...
Honda Motor Part 1​: Honda Motor Company manufactures some of their models in Japan and exports...
Honda Motor Part 1​: Honda Motor Company manufactures some of their models in Japan and exports them to their U.S.​ subsidiary, American Honda. One such imported vehicle costs​ 1,772,000 JPY​ (Japanese Yen). American Honda purchases these vehicles from the parent company in​ JPY, then sells them to dealers in the United States priced in​ USD, at prices that remain stable over the course of a model year. American Honda is concerned about fluctuations in the JPY cost of the vehicles...
1. Under a floating exchange rate system, everything remaining constant, an increase in European exports to...
1. Under a floating exchange rate system, everything remaining constant, an increase in European exports to Japan is most likely to result in: a. a decrease in the demand for euro in the foreign exchange market. b. a decrease in the supply of euro in the foreign exchange market. c. an appreciation of the Japanese yen vis-à-vis the euro. d. an appreciation of the euro vis-à-vis the Japanese yen. 2. Economists believe that the _____ determines the price level in...
If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can...
If on Tuesday you can buy 125 yen per U.S. dollar and on Wednesday you can buy 120 yen per U.S. dollar, a. both the U.S. dollar and the yen have appreciated. b. both the U.S. dollar and the yen have depreciated. c. the U.S. dollar has appreciated and the yen has depreciated. d. the U.S. dollar has depreciated and the yen has appreciated. If the U.S. dollar appreciates in the foreign exchange market, a. American goods will become more...
TRUE FALSE. If false CORRECT the wrong word/words An increase in the nominal exchange rate ($...
TRUE FALSE. If false CORRECT the wrong word/words An increase in the nominal exchange rate ($ per Euro) will make the dollar less expensive to foreigners If iD= 10% and iF = 5%, for investors to be indifferent between holding both one year financial assets, they should expect expect that over the next year the domestic currency will appreciate. A trade deficit implies that that country will require a surplus in the financial account compensating that deficit. An increase in...
An MNC's value depends on all of the following: a. the MNC's required rate of return....
An MNC's value depends on all of the following: a. the MNC's required rate of return. b. the amount of the MNC's cash flows in a particular currency. c. the exchange rate at which cash flows are converted to dollars. d. All of the above 1 points    QUESTION 2 Livingston Co. has a subsidiary in Korea. The subsidiary reinvests half of its net cash flows into operations and remits half to the parent. Livingston's expected cash flows from domestic...
please answer all of them, thank you 10. Some of the major coincident indicators would be:...
please answer all of them, thank you 10. Some of the major coincident indicators would be: A. money supply (M2), consumer expectations, and stock prices (S&P 500). B. personal income, employees on nonagricultural payrolls, and industrial production. C. average prime rate charged by banks, labor cost per unit of output, and commercial and industrial loans outstanding. D. All of the above are coincident indicators 13. The ultimate purpose of fundamental stock valuation is: A. to eliminate stocks of those companies...
Which one of the following statements is true? Select one: a. Traditional Keynesian analysis indicates that...
Which one of the following statements is true? Select one: a. Traditional Keynesian analysis indicates that increases in government purchases are a more potent tool than decreases in taxes. b. According to Keynesians, fiscal policy is the first line of defense against economic downturns. c. Advocates of sacrifice ration claim that a zero-inflation target imposes only small costs on society. d. Sacrifice ration implies that a credible commitment to reducing inflation can lower the costs of disinflation by inducing a...
1. The first step in any top down stock valuation is:A. economic analysis.B. an accurate stock...
1. The first step in any top down stock valuation is:A. economic analysis.B. an accurate stock market prediction.C. financial analysis.D. industry analysis. 2. Which of the following is not a goal of the federal government economic policy as established by the Employment Act of 1946?A. Low inflationB. High levels of employmentC. Balanced federal budgetsD. Economic growth 3. The most widely used tool of the Federal Reserve is: A. open-market operations (buying and selling securities for its own portfolio).B. changing the...
Argentina and Ecuador: Understanding the Currency Crisis While fiscal policy is never far from the mind...
Argentina and Ecuador: Understanding the Currency Crisis While fiscal policy is never far from the mind of your average Argentine, who remembers the tough times and hyperinflation of the 1980s, the events of 2001 and 2002 have brought fiscal policy back to the forefront of public concern. Though the early 1990s may have been characterized by financial optimism, Argentina has been in a recession since Brazil's 1998 monetary crisis sent shockwaves across the regional and global markets. In early 2002,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT