Exchange rate between yen and dollar
Course:- International Economics
Reference No.:- EM13131673

Assignment Help
Expertsmind Rated 4.9 / 5 based on 47215 reviews.
Review Site
Assignment Help >> International Economics

Question 1: Are the statements below true or false? Explain the reasons for your answers.

  1. A country which decides to join a Monetary Union expects an increased ability to stabilize its output around the full employment level and keep inflation low compared with its initial ability under flexible exchange rates.
  2. Suppose that the United States is on a bimetallic standard at $35 to one ounce of gold and $3 for one ounce of silver. If new silver mines open and flood the market with silver, the two metals will circulate as before in the US since citizens could exchange their gold currency for silver currency at any time.
  3. It is impossible for a country to run both current account surplus and capital account surplus in the same year.

Question 2: The graph below is the exchange rate of Japanese Yen to US dollar (¥/$) between August to November 2010. On 15th Sept, Yen moved from 83 to 85.7 yen per dollar due to the Japanese authorities' intervention in the foreign exchange markets to weaken the value of the yen against the dollar, a day after the yen hit a 15-year high against the dollar.

1857_Calculate the current pound spot rate.png

  1. Explain how did Japanese central bank intervene the exchange rate between Yen and Dollar in foreign exchange markets?
  2. What was the government's justification for the intervention?
  3.  Did the intervention succeed? Explain the reasons for your answer.

Question 3: Assume you are a trader in foreign currencies and you look for arbitrage. From the quote screen on your computer terminal, you observe the exchange rate quotations below

Bank Quotations


Citi Bank  :


UBS    :


Barclays Bank  :


Show how you can make a triangular arbitrage profit by trading at these prices. (Ignore the ask-bid spread for this question)   Assume you have £5,000 with which to conduct the arbitrage. 

a. Explain what a triangular arbitrage is. What is a condition that will give rise to a triangular arbitrage opportunity?

b. What €/£ price will eliminate triangular arbitrage?

c. How you can make a triangular arbitrage profit by trading at these prices?  What is the profit? Explain and discuss your calculations.

Question 4: A fund manager uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. He gathers the financial information as follows:

A year ago, the spot rate between pound and dollar is $1.70/£. In the past year, US inflation is 2% and UK inflation is 3.5%. The current spot rate is $1.57/£.

a. What is relative PPP? Calculate the current pound spot rate in dollar that would have been forecast by PPP.

b. Does the PPP hold in this case? What could be the reasons for that?

c. What is IFE? If the expected US one-year interest rate is 0.25%, expected UK one-year interest rate is 0.5%, use IFE to predict the expected pound spot rate in dollar one year from now.

Put your comment

Ask Question & Get Answers from Experts
Browse some more (International Economics) Materials
Is there fundamental political instability in your country, in the form of civil war, major insurgency or ethnic violence and is there risk of fundamental regime change, such
When the British government tripled university fees for foreign students in Great Britain, about one-half of them left to study in other countries." What is the implied pric
In Woodbridge, New Jersey cab fares are not regulated. Taxis may charge whatever they like, provided it is posted on their rate card. This may include a $10 inclement weathe
The Economist or any other publication covering the world economy, international trade, or international economics and provide summary of an international trade article in a
Why would China want its own currency to be undervalued relative to the U.S. dollar? How does China maintain an undervalued currency? Explain why this index may not be valid
Develop a memo as the Chief Marketing Officer for the company briefly discussing the proposed new product and proposed new market. Emphasize why "Nothing runs like a Deere" t
Describe briefly the elaboration likelihood model and what it is all about. Discuss how the central and peripheral routes to attitude change promote changes differently. Discu
China and Japan have two factors of production, land and labor. Both countries produce two goods: corn, which requires more land and computers, which requries more labor. Gi