Financial Institutions Markets and Money
Quiz 12: International Markets
Explain Why a Decline in a Country's Exchange Rate Will
Explain why a decline in a country's exchange rate will generally increase the demand for its goods and reduce its demand for foreign goods.
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With reference to the concepts and terms related to the International Payments Flow (balance of payments), under which conditions could a country have a sizable deficit in its trade balance and still have an appreciating currency?
Increased U.S. inflation, relative to other trading partner nations, should have what impact on the value of the U.S. dollar? Explain thoroughly.
Forrest Gump Bank, a U.S. bank, has 1-year U.S. $200 million loan that earns an average rate of return of 6%. Forrest Gump Bank also has one year single payment Euro loans of €110 million earning 8%. Forrest Gump Bank's funding source is $300 million in US$ one year NCDs, on which they are paying 4%. Initially the exchange rate is €1.10 per $1 U.S. The one year forward rate is €1.14 per $1 U.S. What is the bank's dollar % spread if they hedge fully using Euro forwards?
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