1.
Both Boeing and Airbus price
their aircraft in US dollars. ANA, Japans
largest airline, has ordered $16 billion in new aircraft split between Airbus
and Boeing. Suppose the price for one
Boeing model is $150 million. What is
the current price for this aircraft in Japanese yen? Show the computation (hint: see Exhibit 14-2). There are many websites that show exchange
rates, but here is one: .usforex.com/”>http://www.usforex.com.

2.
Just as with the price of a
good, the price, or exchange rate, of a currency is determined by supply and
demand. However, rather than using a traditional supply and demand analysis as
shown in Marthinsen, currency traders often consider whether foreign funds will
flow into or out of a country as a result of a particular economic circumstance. If foreigners wish to make domestic purchases
or investments, foreign currency must first be exchanged for the domestic
currency. Thus, foreign funds flowing into
a country increase the demand for the domestic currency and it appreciates. Funds flowing out reverse this process
leading to depreciation of the domestic currency. In the table, place an X to indicate whether
each economic condition will cause foreign funds to flow in or out of the
country and whether the domestic currency will appreciate or depreciate.

Domestic circumstance

Funds
flow in

Funds
flow out

Currency
appreciates

Currency
depreciates

Real interest rates are higher than in other
countries

Risk of civil war

Business taxes are raised above world average

X

Expected stock market returns are better than
elsewhere

Inflation increases

A large deposit of rare earth minerals is discovered

Rapidly growing manufacturing sector imports more
foreign raw materials

3.
Explain the historical exchange
rates of the Argentine Peso to the US dollar using information from the 2
charts below. Use care to correctly
interpret the charts. Original data is
available, though not needed, from the websites listed below and many other
internet sources.
USforex – .usforex.com/forex-tools/historical-rate-tools/yearly-average-rates”>http://www.usforex.com/forex-tools/historical-rate-tools/yearly-average-rates
Trading Economics –
http://www.tradingeconomics.com/argentina/inflation-cpi

.jpg”>.jpg”>

4.
Suppose China wishes to peg the
Chinese Yuan to the US dollar at $0.20/Yuan.
But, because of foreign funds flowing into China, the Yuan
appreciates. How can the Peoples Bank
of China (Chinas central bank) maintain the pegged exchange rate? Is the Bank of China limited by its foreign
exchange holdings in maintaining the peg?
5.
The Venezuelan bolivar has been
steadily depreciating against the US dollar, but the government wishes to stop the
depreciation. What must the Banco
Central de Venezuela do to stabilize the exchange rate? Is there a limit to how much it can intervene
in the foreign exchange markets?
6.
The US Fed has increased the
money supply through massive open market purchases of financial
securities.
a.
In the graph, show the shift in
the supply or demand curve for US dollars and the effect on the exchange rate.
.png”>
b.
Does the US dollar appreciate
or depreciate relative to other currencies?

c.
Will this new exchange rate
make US exports more or less expensive for foreign buyers?

d.
Recall that GDP = C + I + G +
NE. If all other factors are unchanged (ceteris
paribus), explain the predicted effect on US GDP?1.
Both Boeing and Airbus price
their aircraft in US dollars. ANA, Japans
largest airline, has ordered $16 billion in new aircraft split between Airbus
and Boeing. Suppose the price for one
Boeing model is $150 million. What is
the current price for this aircraft in Japanese yen? Show the computation (hint: see Exhibit 14-2). There are many websites that show exchange
rates, but here is one: .usforex.com/”>http://www.usforex.com.2.
Just as with the price of a
good, the price, or exchange rate, of a currency is determined by supply and
demand. However, rather than using a traditional supply and demand analysis as
shown in Marthinsen, currency traders often consider whether foreign funds will
flow into or out of a country as a result of a particular economic circumstance. If foreigners wish to make domestic purchases
or investments, foreign currency must first be exchanged for the domestic
currency. Thus, foreign funds flowing into
a country increase the demand for the domestic currency and it appreciates. Funds flowing out reverse this process
leading to depreciation of the domestic currency. In the table, place an X to indicate whether
each economic condition will cause foreign funds to flow in or out of the
country and whether the domestic currency will appreciate or depreciate. Domestic circumstanceFunds flow inFunds flow outCurrencyappreciatesCurrencydepreciatesReal interest rates are higher than in other
countriesRisk of civil warBusiness taxes are raised above world averageXExpected stock market returns are better than
elsewhereInflation increasesA large deposit of rare earth minerals is discoveredRapidly growing manufacturing sector imports more
foreign raw materials3.
Explain the historical exchange
rates of the Argentine Peso to the US dollar using information from the 2
charts below. Use care to correctly
interpret the charts. Original data is
available, though not needed, from the websites listed below and many other
internet sources. USforex – .usforex.com/forex-tools/historical-rate-tools/yearly-average-rates”>http://www.usforex.com/forex-tools/historical-rate-tools/yearly-average-ratesTrading Economics –
http://www.tradingeconomics.com/argentina/inflation-cpi.jpg”>.jpg”>4.
Suppose China wishes to peg the
Chinese Yuan to the US dollar at $0.20/Yuan.
But, because of foreign funds flowing into China, the Yuan
appreciates. How can the Peoples Bank
of China (Chinas central bank) maintain the pegged exchange rate? Is the Bank of China limited by its foreign
exchange holdings in maintaining the peg?5.
The Venezuelan bolivar has been
steadily depreciating against the US dollar, but the government wishes to stop the
depreciation. What must the Banco
Central de Venezuela do to stabilize the exchange rate? Is there a limit to how much it can intervene
in the foreign exchange markets? 6.
The US Fed has increased the
money supply through massive open market purchases of financial
securities. a.
In the graph, show the shift in
the supply or demand curve for US dollars and the effect on the exchange rate. .png”>b.
Does the US dollar appreciate
or depreciate relative to other currencies?c.
Will this new exchange rate
make US exports more or less expensive for foreign buyers?d.
Recall that GDP = C + I + G +
NE. If all other factors are unchanged (ceteris
paribus), explain the predicted effect on US GDP?