1) Describe how the U.S. automobile importer could finance the shipment of Toyotas from Japan. Trace steps as to how the U.S. export of machinery to Italy could be financed. Describe: ‘U.S. exports earn supplies of the foreign currencies that Americans may use to finance the imports’.
2) Signify if each of the following generates the demand for, or the supply of, European euros within the foreign exchange markets:
a) A U.S. airline firm purchases various Airbus planes assembled in the France.
b) A German automobile firm describes to form an assembly plant in the South Carolina.
c) A U.S. college student chooses to spend the year studying at Sorbonne.
d) An Italian manufacturer ships machinery from one Italian port to the other on the Liberian freighter.
e) The United States economy grows much faster rather than the French economy.
f) A United States government bond held by the Spanish citizen matures, and the loan is paid back to that particular person.
g) It is generally believed that Swiss franc will fall in the near future.
3) 'A increase in the dollar price of yen essentially specifies a fall in yen price of dollars.” Could you agree? describe and elaborate: ‘The critical thing regarding exchange rates is that they offer the direct link between prices of goods and services generated in all the trading nations of world.' Describe the purchasing power parity theory of the exchange rates.
4) Assume the Swiss watchmaker imports watch components from the Sweden and exports watches to United States. Also assume that the dollar degrades, and Swedish Krona grows, relative to the Swiss franc. Evaluate as to how this would hurt the Swiss watchmaker.
5) Describe why U.S. demand for the Mexican pesos is down sloping and the supply of the pesos to Americans is up sloping. Supposing the system of floating exchange rates between the Mexico and the United States, specify if each of the following would results in the Mexican peso to increase or degrades:
a) The United States unilaterally decreases the tariffs on the Mexican products.
b) Mexico encounters critical inflation.
c) Deteriorating political relations decreases the American tourism in the Mexico.
d) The United States’ economy moves into the critical recession.
e) The U.S. engages in the high interest rate monetary policy.
f) Mexican products become more fashionable to the U.S. consumers.
g) The Mexican government promotes the U.S. firms to invest in the Mexican oil fields.
h) The rate of productivity growth in the United States reduces sharply.