Question

true or false: ) 1. Like gold standard, the currency board (foreign exchange rate policy) is...

true or false: )

1. Like gold standard, the currency board (foreign exchange rate policy) is doomed to fail.

(2) You are to buy ¥200m with Australian dollars through a forward contract maturing in 6 months. The forward price is F6(¥/A$)=100. If the spot rate at the maturity is S6(¥/A$)=80. You have a loss in the forward trading.

(3) For euro to become a world currency, it is necessary that the eurozone countries run long-term trade deficits.

(4) For a country with a deficit in the current account, devaluation of domestic currency will help reduce the deficit immediately.

(5) In a nation which pegs its currency to the U.S. dollar at fixed exchange rates, it is very likely that the central bank must purchase dollars with its domestic currency when facing large trade surplus.

Homework Answers

Answer #1

(2) False - if forward price is high and spot price is less this is the optimal value to buy any currency as it will give you the benefit on your invesment.

(3) False - if the countries having long term trade deficit than they never become a world currency for that you need to have a stable and growing economy with surplus in trade.

(4) False - the devaluation makes foreign products relatively more expensive for domestic consumers, thus discouraging imports. This may help to increase the country's exports and decrease imports, and may therefore help to reduce the current account deficit but not immediately.

(5) True - if the coutry wants the benefit of trade surplus it can purchase trade currency or in this case dollar for domestic currency as it will help them for future payments and less risk on countries economy.

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
True or false and explain please. 1.Like gold standard, the currency board (foreign exchange rate policy)...
True or false and explain please. 1.Like gold standard, the currency board (foreign exchange rate policy) is doomed to fail. 2.For euro to become a world currency, it is necessary that the eurozone countries run long-term trade deficits. 3.For a country with deficit in current account, devaluation of domestic currency will help reduce the deficit immediately. 4.In a nation which pegs its currency to the U.S. dollar at fixed exchange rates, it is very likely that the central bank must...
In a nation which pegs its currency to the U.S. dollar at fixed exchange rates, it...
In a nation which pegs its currency to the U.S. dollar at fixed exchange rates, it is very likely that the central bank must purchase dollars with its domestic currency when facing large trade surplus.
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...
international marketing The Euro Yo-Yo Since the inception of the European Monetary Union (EMU) on January...
international marketing The Euro Yo-Yo Since the inception of the European Monetary Union (EMU) on January 1, 1999, the ups and downs of the euro have created challenges and opportunities for global companies. The euro’s volatility has also compounded the economic problems of the 12 countries in the euro zone. The euro began its life as an electronic medium with an exchange rate set at €1 equal to $1.161. Then, the unexpected happened: The euro’s value plunged relative to the...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT