Reference no: EM132157528

Part 1

1. Impact of Devaluation. The inflation rate in Yinland was 14 percent last year. The government of Yinland just devalued its currency (the yin) by 40 percent against the dollar. Even though it produces products similar to those of the United States, it has much trade with the United State and very little trade with other countries. It presently has trade restrictions imposed on all non-U.S countries. Will the devaluation of the yin increase or reduce inflation in Yinland? Briefly explain.

2. Central Bank Control Over Its Currency's Value. Assume that France wants to change the prevailing spot rate of its currency (euro) in order to improve its economy, while Switzerland wants to change the prevailing value of its currency (Swiss franc) in order to improve its economy. Which of these two countries is more likely to have more control over its currency? Briefly explain.

3. Changes in Forward Premiums. Assume that the forward rate premium of the euro was higher last month than it is today. What does this imply about interest rate differentials between the United State and Europe today compared to those last month?

4. Limitations of Covered Interest Arbitrage. Assume that the 1-year U.S. interest rate is 11 percent , while the 1-year interest rate in Malaysia is 40 percent. Assume that a U.S. bank is willing to purchase the currency of that country from you 1 year from now at a discount of 13 percent. Would covered interest arbitrage be worth considering? Is there any reason why you should not attempt covered interest arbitrage in this situation? (Ignore tax effects)

Part 2 "Bankruptcy"

1. Use the Internet to locate four different recent bankruptcy filings from publicly traded corporations. Then, use the Internet to locate information on Altman's Z-Score. Propose two steps that a company could take in order to avoid bankruptcy. Provide a rationale for your proposals.

2. Analyze the components of Altman's Z-Score. Suggest at least two decisive measures that a company could take in order to lower its probability of bankruptcy.

Please use quality research in your internet search. Cite your references.