### Estimating the percentage depreciation

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1. Percentage Depreciation. Assume the spot rate of the British pound is \$1.73. The expected spot rate one year from now is assumed to be \$1.66. What percentage depreciation does this reflect?

2. Factors Affecting Exchange Rates. What factors affectthe future movements in the value of the euroagainst the dollar?

3. Interaction of Exchange Rates. Assume that there are substantial capital flows among Canada, the United States, and Japan. If interest rates in Canada decline to a level below the U.S. interest
rate, and inflationary expectations remain unchanged, how could this affect the value of the Canadian dollar against the U.S. dollar? How might this decline in Canada's interest rates possibly affect the value of the Canadian dollar against the Japanese yen?

4. Impact of Crises. Why do you think most crises in countries (such as the Asian crisis) cause the local currency to weaken abruptly? Is it because of trade or capital flows?

5. Assessing Volatility of Exchange rate movements.Assume you want to determine whether the monthly movements in the Polish zloty against the Dollar are more volatile than monthly movements in some other currencies against the Dollar. the zloty was valued at \$.4602 on May 1, \$.4709 on Jun 1, \$.4888 on Jul1, \$.4406 on August 1, and \$.4260 on Sep 1. Using Excel or another electronic Spreadsheet, Computer the standard Deviation (a measure of volatility) of the zloty's monthly exchange rate movements. Show your Spreadsheet.

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